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empirical analysis of capital structure & working capital management on profitability & shareholders’ value with reference to FMCG companies”

“An

Submitted by Submitted to

:-

Vishal Pandit Paresh Parmar

:- Prof. Sandhya Harkawat

“An empirical analysis of Capital Structure & Working Capital Management on Profitability & Shareholders’ value with reference to FMCG Companies”

Project Guide:
Prof. Sandhya Harkawat

Submitted by:
Vishal L. Pandit (53) Paresh C. Parmar (56)

S. K. PATEL INSTITUTE OF MANAGEMENT & COMPUTER STUDIES Gandhinagar, India

April 2011

CERTIFICATE
This is to certify that Mr. Vishal l. Pandit & Mr. Paresh C. Parmar of S.K. Patel Institute of management and Computer Studies, Gandhinagar has submitted their Grand Project titled, “An empirical analysis of Capital Structure & Working Capital Management on Profitability & Shareholders’ value with reference to FMCG Companies” in the year 2009-2011 in partial fulfilment of Kadi Sarva Vishwavidhyalaya requirements for the award of the title of Master of Business Administration.

Prof. Sonu V. Gupta Director in charge

Prof. Prakash chawla Coordinator

Prof. Sandhya Harkawat Project Guide

Date:

Place:

DECLARATION
We hereby, declare that the grand project titled, “An empirical analysis of Capital Structure & Working Capital Management on Profitability & Shareholders’ value with reference to FMCG Companies” is original to the best of our knowledge and has not been published elsewhere. This is for the purpose of the partial fulfilment of Kadi Sarva Vishwavidhyalaya requirements for the award of the title of Master of Business Administration.

Name: Vishal L. Pandit Paresh C. Parmar

Signature: __________________ __________________

M. Today is not like yesterday and tomorrow will not like be today. concepts & techniques of management. is one of those professional courses which help students to keep pace the changing trends in business and its surrounding environment. The subject ‘Practical Studies’ particularly helps the students to know the actual corporate world. the more you see its unbounded profundity.PREFACE “Knowledge is the ocean that cannot be fathomed the deeper you go.” Change in occurring at an accelerated rate.A. the anxieties and stress associated with the job which cannot be understood sitting in a classroom. Complying with the objective the report is designed to develop the students understanding about the industry with the special emphasis on the development of skills in analyzing and interpreting practical problems through the application of theory. Today’s market place is how to succeed in the dynamic environment that surrounds the corporate world today. .B.

This acknowledgement is not just an acknowledgement. Samveg Patel for providing such a huge opportunity. Many persons stand besides the men while and without their acknowledgement the accomplishment is incomplete. Finally. And also to our parents who (in their blessings) supported us working sincerely to prepare this report. a special thanks to S K Patel College and staff for all their blessings and support. it is heart full thanks to all those who made our project a great learning experience. we were able to finish the report successfully.Sandhya Harkawat under whose blissful guidance.ACKNOWLEDGEMENTS Even for a very minute accomplishment the result is not the effort of a single person. We are very grateful to our director Prof. It is almost a ritual to begin the training report with an acknowledgement. Sonu Gupta and to our summer project coordinator Prof. . Also to our mentor Prof.

TABLE OF CONTENTS Chapter No Particulars Title page Certificate Declaration Preface Acknowledgement Executive Summary Introduction Research Methodology a) Research Objective b) Scope of the study c) Research Design d) Types of Data e) Hypothesis Literature Review Theoretical aspects of the study Data Analysis & Findings Conclusion Bibliography Page No I Ii Iii IV V Vi 1 1) 2) 3) 4) 5) 6) 7) .

A company's reasonable. Earning per share. or precisely to the management of current assets. By analysing the company’s performance of selected 5 FMCG companies based on BSC index. cash and bank balance. we can know that there is impact to capital structure performance but more effect to working capital of those companies. inventories. Debt equity ratio. Operating profit ratio were major important parameter taken for analysis purpose. For working capital companies managed it very well in all companies. WCM refers to the management of working capital. In the study of working capital and capital structure for profitability different ratios were use for analysis purpose. There was also made impact of dependent variable earning per share and operating profit to other different ratios. . receivable. Nestle played very well role in capital structure compare to other selected units. and marketable securities. proportional use of debt and equity to support its assets is a key indicator of balance sheet strength. • Capital structure impact to profitability indicator operating profit to earning per share. A healthy capital structure that reflects a low level of debt and a corresponding high level of equity is a very positive sign of investment quality. Following are the main study for working capital and capital structure • Working capital practice in FMCG companies in selected units • Working capital impact on profitability by comparing impact of dependent variable earning per share and operating profit to other different ratios. • Individual companies performance based on indicator Earning per share to Debt equity ratio effect to individual company. which include mostly short-term assets.EXECUTIVE SUMMARY A study of working capital management and capital structure is a major importance to internal and external analysis because of its close relationship to current day-to-day operations of business. A firm’s working capital consists of its investment in current assets. So working capital play important role in the selected companies.

working capital is very essential to maintain the smooth running of a business.There is no significant impact show between the operating profit to earning per share in the study. The working capital requirements should be met both from short term as well as long term sources of funds. as opposed to debt capital. Working capital is the life blood and courage centre of a business. A company's capitalization (not to be confused with market capitalization) describes the composition of a company's permanent or long-term capital. Just as circulation of blood is essential in the human body for maintaining life. We used secondary data for study purpose for this study. which consists of a combination of debt and equity. . INTRODUCTION The selection of topic was based on interested in work in manufacturing company. in a company's capital structure is an indication of financial fitness. No business can run successfully without an adequate amount of working capital. Financing of working capital through short term sources of funds has the benefits of lower cost and establishing close relationship with banks. Working capital and capital structure are important parameter to Judge Company’s performance. A healthy proportion of equity capital. Financing of working capital through long term sources provides the benefits of reduces risk and increases liquidity. So according to us it was seen that there is comparison make between theoretical and real market condition.

08 -0.86 5.30 11.181.320.545.687.00 .10 17.65 4.53 20.50 -0.16 -0.25 Food Processing Personal Care 3. 3. To examine the combine effect of the ratios relating to working capital management and Companies ’s profitability indicator Earning Per Share. BSE FMCG INDEX Company Name ITC HUL Nestle Dabur India Industry Cigarettes 01 Nov 15:34 Last Change % Mkt Cap Weight Price Chg (Rs cr) 171. 4. Scope of the study We have selected 5 FMCG companies for our research.47 Personal Care 293.996.20 56.29 63. To show which company show better performance in working capital and capital structure compare to each other.60 0.26 131.50 43.RESEARCH METHODOLOGY Objectives of the Study 1. To assess the impact of working capital on profitability.10 4.35 99.85 0. These 5 FMCG companies according to FMCG BSE index on bases of market capitalization. 2.983.99 13.62 34.89 1.45 -0. To study the impact of capital structure on profitability & shareholders’ value of FMCG companies.20 0.15 Godrej Consumer Personal Care 423.

Regression Analysis.  Ho5= There is no significant impact of dependable variable Operating profit independent variable Earning per share.  Ho2= Average ratios of debtors’ conversion period of companies do not differ significantly  Ho3= Average ratios of creditors’ conversion period of companies do not differ significantly. We are going to analyze above company’s capital structure and working capital position for the purpose of knowing the how they are managing these things and how it will affects to the profitability and shareholders’ value. 2. Average method. .We have selected top 5 FMCG manufacturing companies based on market capitalization as on 1st Num. ANOVA(F test). Website of Capital Line Data Analysis Tools      Ratio analysis. Data Collection Secondary data: 1. 5 years Annual Reports of the companies. Correlation. Approach Descriptive approach It is a kind of fact finding research in which we are trying to analyze capital structure and working capital position of companies. 2010. Hypothesis Following are the hypothesis to be tested  Ho1= Average ratios of inventory conversion period of companies do not differ significantly.  Ho4= Average ratios of cash conversion period of companies do not differ significantly.

Therefore. The results reveals that Aban Limied. Literature review 1.  Ho7= There is no significant difference of dependent EPS variable to debt equity ratio of HUL. present study is initiated on working capital management practices. and Lalu limited that manage their working capital more efficiently that other companies.  Ho10= There is no significant difference of dependent variable EPS to debt equity ratio of Godrej. A firm’s working capital consists of its investment in current assets. or precisely to the management of current assets. Working Capital Management Practices A case study of Listed Manufacturing Companies in Sri Lanka(Journal of IPM Meerut Volume 11.  Ho9= There is no significant difference of dependent variable EPS to debt equity ratio of Dabur. receivable. The goal of WCM if to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. Ho6= There is no significant difference of dependent variable EPS to the debt equity ratio of ITC. January-June-2011) ABSTRACT A study of working capital management is a major importance to internal and external analysis because of its close relationship to current day-to-day operations of business. WCM refers to the management of working capital.  Ho8= There is no significant difference of dependent variable EPS to debt equity ratio of Nestle. cash and bank balance. 2. inventories. Working capital and profitability . and marketable securities. which include mostly short-term assets.

We depended on the Approach of Behavioral Finance to this matter as a supplementary approach of traditional finance to capital structure. Behavioral Dimension of Cross-Sectoral Capital Structure Decisions: ISE (Istanbul Stock Exchange) Application Abstract In our study. Affiliated to Bakatullah university. Working capital limited of the company concluded the increase in the profitability of the company was less than the proportion to decrease in working cpital. it was seen that it affects leverage level of sector leader considerably. In the study we carried out by using panel data analysis method.An empirical analysis by P. 3. WTR and DTR refistered negative correlation with the selected profitability ratio. however. it was seen that both sector average and sector leader display a positive relation with leverage level of firms with a significance of 10%. while sector averages are effective at a meaningful extent in white goods sector. when we consider the firms we addressed as a whole without discrimination in sector-specific terms.Narvare(Lecturer. . Out of the nine ratios selected for the study three ratios.C. In respect of its influence on leverage levels of the firms in four sector we addressed for the period of 19992006 (White Goods and Electronic. we tested whether average leverage level of sector and leverage level of sector leader are effective on capital structure decisions of selected firms and sectors listed in ISE. Bhopal) ABSTRACT Working capital management and profitability of the company disclosed both negative and positive association. namely CTSR. RoI. Paper and Packing). Cement. Banking. The sloped of the ROI.

Among the most important items of working capital are levels of inventory. it is the non . the more is the ability to pay obligations when they become due for payment. There are two concepts of working capital: gross and net working capital. Analysts look at these items for signs of a company's efficiency and financial strength. The term net working capital can be defined in two ways: (i) the most common definition of net working capital (NWC) is the difference between current assets and current liabilities. among other things. for financing the conversion of raw materials into finished goods. which the company sells for payment. Efficient working capital management requires that firms should operate with some amount of NWC. A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital. The common Definition of NWC and its Implications NWC is commonly defined as the difference between current assets and current liabilities.THEORETICAL STUDY Working Capital ASPECTS OF THE Working capital refers to the cash a business requires for day-to-day operations. also referred to as working Capital. accounts receivable and accounts payable. and ii) alternate definition of NWC is that portion of current assets which is financed with long-term funds. current assets and current liabilities. The NWC is necessary because the cash outflows and inflows do not coincide. on the nature of industry. the exact amount varying from firm to firm and depending. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. The theoretical justification for the use of NWC to measure liquidity is based on the premise that the greater the margin by which the current assets cover the short-term obligations. or. in respect to each other. The term gross working capital. more specifically. means the total current assets. In other words.

e. The cash inflows are. operating efficiency Profit level.. In general. It consists broadly of that portion of assets of a business which are used in or related to its current operations. however difficult to predict. risk and return.. Seasonal variations working capital cycle. Excess working capital may result into over all inefficiency in organization. Management of working capital A firm must have adequate working capital. It can arrange loans from banks and others on easy and favorable terms. Disadvantages of working capital • • • • Rate of return on investments also fall with the shortage of working capital.. The basic objective of working capital management is to manage firms current assets and current liabilities in such a way that the satisfactory level of working capital is maintained.e. capital) available and used for day to day operations (i. it will be necessary to maintain current assets at a level adequate to cover current liabilities. i. Advantages of working capital • • • • • It helps the business concern in maintaining the goodwill.synchronous nature of cash flows that makes NWC necessary. Inadequate working capital means the firm does not have sufficient funds for running its operations. the less NWC will be required. Both situations are dangerous. with almost certain and predictable cash inflows can operate with little or no NWC. i. A firm. the cash outflows resulting from payment of current liabilities are relatively predictable. But where cash inflows are uncertain. It creates an environment of security.e. as much as needed the firm. that is there must be NWC Working capital means the funds (i. Excess working capital means idle funds which earn no profits. working) of an enterprise. The more predictable the cash inflows are. Excessive working capital means the firm has idle funds which earn no profits for the firm. It will be interesting to understand the relationship between working capital. Inadequate working capital can not pay its short term liabilities in time.e. It helps in maintaining solvency of the business.. and overall efficiency in a business. It enables a concern to face business crisis in emergencies such as depression. It should be neither excessive nor inadequate. confidence. Factors that determine working capital The working capital requirements of a concern depend upon a large number of factors such as Size of business Nature of character of business. neither inadequate . say an electricity generation company. It refers to funds which are used during an accounting period to generate a current income of a type which is consistent with major purpose of a firm existence. other factors.

nor excessive. since firms may not realize value maximization when they form a capital structure using only liabilities source or form a capital structure by using no liability. For stock investors that favour companies with good fundamentals. Agency Theory and Pecking Order Theory. Working capital some times is referred to as “circulating capital”. Another capital structure theory is Pecking Order Theory suggested by Myers and Majluf (1984). firms should balance between costs in order to reach an optimal capital structure (Ghosh and Cai. decrease in agent cost and bankruptcy and financial distress costs. a "strong" balance sheet is an important consideration for investing in a company's stock. Many studies were carried out on description of factors influencing capital structure decisions since Modigliani-Miller as an expression of a choice between debt and equity. 2007). SSL can increase their margins by extending credit to good customers and also by paying the creditors in advance to get better rates. guaranty agreement costs and unavoidable losses cost (Chambers. The company has been effective in carrying working capital cycle with low working capital limits. there are agency costs incurred to reduce agent problems in firms collected under the headings of monitoring costs. capital structure decisions are made reducing agency costs of equity by high leverage level and increasing market value of the firm for the purpose of decreasing agency costs (Berger Allen N. different theories were seen regarding description of capital structure in parallel with change in expectations and preferences of firm directors and shareholders. presuming goods are sold as credit. CAPITAL STRUCTURE Directors to make decision on capital structure should make a choice between debt and equity.We may collect descriptions of traditional finance on formation of capital structure mainly in three groups: Trade-off Theory. Agency Theory is a theory dealing with agent problems due to approach or interest differences between director and shareholders caused by distribution of firm cash flow. As a result of these studies based on rationality within the framework of traditional finance.. The flow begins with conversion of cash into raw materials which are. According to Trade-off Theory. According to the Pecking Order Theory. However. Collection of receivables brings back the cycle to cash. in turn transformed into work-in-progress and then to finished goods.2001). In order to further increase profit margins. 1999). Operating cycle can be said to be t the heart of the need for working capital. capital structure of a firm is formed by focusing onorder of priority of different sources to meet financial requirements of firms (Frank and Goyal. With the sale finished goods turn into accounts receivable. It may also be observed that the PBT in absolute terms has been increasing as a year to year basis as could be seen from the above table although profit percentage turnover may be lower but in absolute terms it is increasing. Trade-off Theory which was set forth by Myers (1984) refers to the necessity of establishing a balance between tax saving arising from debt. According to the theory.Pati di Emillia Bonaccorsi.Lacey. The strength of a company' . 2002).

specific short-term debt. whereas equity is classified as common stock. This invested capital and debt. The proportion of short-term and long-term debt is considered in analyzing a firm's capital structure. Debt comes in the form of bond issues or long-term notes payable. they most likely are talking about a firm's debt/equity ratio. which are summed up in the shareholders' equity account on a balance sheet. In a company's capital structure. generally of the long-term variety. common equity. Short-term debt such as working capital requirements also is considered part of the capital structure. The equity part of the debt-equity relationship is the easiest to define. and preferred equity.balance sheet can be evaluated by three broad categories of investment-quality measurements: working capital adequacy. the capital structure is the firm's various sources of funds used to finance its overall operations and growth. i. Usually a company financed heavily by debt poses greater risks because it is highly leveraged.e. or retained earnings. comprises a company's capitalization. When people refer to capital structure. . which provides insight into how risky a company is. asset performance and capital structure. preferred stock. equity consists of a company's common and preferred stock plus retained earnings. a permanent type of funding to support a company's growth and related assets. The combination of a company's long-term debt.

The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. the better the position of the company. Inventory Turnover A ratio showing how many times a company's inventory is sold and replaced over a period. "cash asset ratio" and "cash ratio" Quick Ratio An indicator of a company's short-term liquidity. The higher the quick ratio. . The quick ratio is calculated as: Quick Ratio = Current Assets-Inventories/Current Liabilities Also known as the "acid-test ratio" or the "quick assets ratio".RATIO Current Ratio A liquidity ratio that measures a company's ability to pay short-term obligations The Current Ratio formula is: Current Ratio = Current Assets/Current Liabilities Also known as "liquidity ratio".

It equals: It can be calculated as Sales/Net worth + Long term Liabilities. plant and equipment (PP&E) . A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments . Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors Debtors Turnover Ratio = Total Sales / Debtors Investment Turnover Ratio Return earned on capital invested in a business.specifically property. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. Formula: Asset Turnover = Revenue / Assets Earnings per Share–EPS .net of depreciation. It is calculated by dividing sales in dollars by assets in dollars. Debtor turnover ratio or accounts receivable turnover ratio It indicates the velocity of debt collection of a firm.Generally calculated as: Inventory Turnover = Sales/Inventory It may also be calculated as: Inventory Turnover = Cost of goods sold/Average inventory The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days".and Equipment Asset Turnover The amount of sales generated for every dollar's worth of assets. A higher ratio indicates good use of the funds placed into the business Fixed-Asset Turnover Ratio A financial ratio of net sales to fixed assets.Plan. The fixed-asset turnover ratio is calculated as: Fixed Assets Turnover = Net Sales/Net property.

Also known as "earnings before interest and tax" (EBIT) Calculated as: Operating profit = operating revenue – operating expenses When calculating. This value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes. value* *365/ . Debt/Equity Ratio A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. However. it is more accurate to use a weighted average number of shares outstanding over the reporting term. Calculated as: EPS = Net income-Dividends on preferred stock/Average Outstanding Shares Operating Profit The profit earned from a firm's normal core business operations. Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number. It indicates what proportion of equity and debt the company is using to finance its assets. because the number of shares outstanding can change over time. data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period. Earnings per share serve as an indicator of a company's profitability. Calculated: D/E Ratio : Total liabilities/Shareholders Equity Management of working capital practice ratios Type of Ratios Explanations Calculation The Inventory conversion ICP is the time required to Average stock period(ICP) convert inventory into cash 365/Cost of sales Debtors’ Period(DCP) Conversion DCP is the time required to Average Debtors collect the cash from Net Credit Sales debtors.The portion of a company's profit allocated to each outstanding share of common stock.

Creditors’ period(CCP) Conversion CCP is the length of time the Average Creditors firm is able to defer 365/Cost of Sales payments on various resource purchases. Hypotheses  Ho1=Average ratios of inventory conversion period of companies do not differ significantly.  Ho2=Average ratios of debtors’ conversion period of companies do not differ significantly  Ho3=Average ratios of creditors’ conversion period of companies do not differ significantly. which include mostly short-term assets. and marketable securities. inventories.  Ho4=Average ratios of cash conversion period of companies do not differ significantly. Cash Conversion Cycle CCC is the length of time (CCC) between a firm’s purchase of CCC=ICP+DCP-CCP inventory and the receipt of cash from accounts receivable * DATA ANALYSIS & FINDINGS Working capital practice in the selected companies A firm’s working capital consists of its investment in current assets. present study is initiated on working capital management practices. receivable. cash and bank balance. . The goal of WCM if to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. Therefore.

Results and discussions 1. . Itc. The inventory conversion period(ICP) The inventory conversion period of FMCG five companies is given below. The table indicate that Nestle and Dabur India were companies to hold inventory for lesser number of days than the yearly industry average holding period during the entire study period whereas. profit and loss. Hence Nestle and Dabur India companies were efficient by holding the inventory lesser period that the overall industry aggregate holding period of 55 days. income statements of the companies concerned. YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 MEAN ITC 51 65 67 83 72 68 HUL 64 61 64 55 51 59 NESTLE 45 44 47 47 44 45 DABUR INDIA 39 40 43 45 47 43 GODREJ CONSUMER 60 64 76 64 37 60 MEAN 52 55 59 58 50 55 Source: calculated from the figures available in the balance sheets . Hul. From the table it is found that the inventory conversion period of 2007-08 highest of 59 days and 2005-06 lowest of 52 days. Godrej Consumer held its inventory for more than the yearly industry average holding during the entire study period which were much above the yearly industry average and the overall aggregate holding period of 55 days.

It is seen that from the table the debtors’ conversion period companies varied between the highest of 44 days and lowest of 40 days and aggregate holding period was 42 days . DABUR INDIA companies were efficient by holding the debtors lesser period that the overall industry aggregate holding period of 42 days.8972) industry mean and company mean. 2. NESTLE. Hence HUL. profit and loss. The significant level at 5%. ICP period of companies do not differ significantly. ITC.The average ICP of selected companies have been compared using F-test and co relation tested by the following.72 and result of F-test is 0.  Ho1=Average ratios of inventory conversion period of companies do not differ significantly.081 which indicates that inventory conversion period ‘s null hypothesis is accepted.16) is 9. There is negative relationship between ( -0. income statements of the companies concerned. NESTLE. DABUR INDIA were companies to hold debtors for lesser number of days than the yearly industry average holding period during the entire study period whereas. DABUR INDIA 33 36 30 34 28 32 GODREJ CONSUMER 51 42 47 37 53 46 YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 MEAN ITC 46 54 59 71 67 59 HUL 53 48 40 23 21 37 NESTLE 37 38 40 34 36 37 MEAN 44 44 43 40 41 42 Source: calculated from the figures available in the balance sheets . The data in the table indicate that HUL. GODREJ CONSUMER held its debtors for more than the yearly industry average holding during the entire study period. . The average DCP of selected companies have been compared using F-Test and correlation are tested by the following . F critical value (5. Debtors Conversion Period (DCP) The Debtors’ conversion period of FMCG 5 companies is given below.

F critical value (5.4811) industry mean and company mean. YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 MEAN ITC 61 69 77 92 86 77 HUL 118 121 125 99 102 113 NESTLE 56 58 58 55 52 56 DABUR INDIA 69 69 71 63 64 67 GODREJ CONSUMER 107 116 123 105 115 113 MEAN 82 87 91 83 84 85 Source: calculated from the figures available in the balance sheets. The average CCP of selected companies have been compared using one-way ANOVA and are tested by the following. Hence. we can say that on an average basis HUL. . The data in table indicate that HUL.72 and result of F-test is 0. NESTLE. There is positive relationship between ( 0. ITC. income statements of the companies concerned.16) is 9. Creditors conversion Period(CCP) The creditors’ conversion period of FMCG 5 companies is given below. profit and loss. It is clear that from the table the creditors’ conversion period of companies highest of 91 days in year 2007-08 and the lowest of 82 days in the year 2005-06 and aggregate holding period was 85 days . GODREJ CONSUMER were efficient by holding the creditors for higher number of days that the overall industry aggregate holding period of 85 days. GODREJ CONSUMER were companies to hold creditors for higher number of days than the yearly industry average holding during the entire study period whereas. GODREJ CONSUMER held its creditors for less than the yearly industry average holding during the entire study period. 3.0001 which indicates that inventory conversion period ‘s null hypothesis is accepted. ICP period of companies do not differ significantly. Ho2=Average ratios of debtors’ conversion period of companies do not differ significantly The significant level at 5%.

00181 which indicates that inventory conversion period ‘s null hypothesis is accepted.16) is 9. Ho3=Average ratios of creditors’ conversion period of companies do not differ significantly. There is negative relationship between (-0. ICP period of companies do not differ significantly. The significant level at 5%. Cash Conversion Cycle(CCC) The cash conversion cycle of FMCG 5 companies is given below. HUL. income statements of the companies concerned.72 and result of F-test is 0. 4. The average CCC of selected companies have been compared using F-test and correlation and are tested by the following. DABUR INDIA. The data in table indicate that companies held cash conversion for lesser number of days 2007-08 and 2009-10 than aggregate overall average mean. . GODREJ CONSUMER companies were efficient by holding the cash lesser period compare with ITC and NESTLE.25891) industry mean and company mean. From the table it is found that the CCC of companies were varied between the highest of 16 days and lowest of 7 days in the year and the aggregate holding period was 12 days. profit and loss. YEAR 2005-06 2006-07 2007-08 2008-09 2009-10 MEAN ITC 36 50 46 62 53 49 HUL -1 -12 -21 -21 -30 -17 NESTLE 26 24 29 26 28 27 DABUR INDIA 3 7 2 16 11 8 GODREJ CONSUMER 4 -10 0 -4 -25 -7 MEAN 14 12 11 16 7 12 Source: calculated from the figures available in the balance sheets. F critical value (5. Hence.

72 and result of F-test is 0.DABUR INDIA HUL. There is positive relationship between (0. F critical value (5. The significant level at 5%. DABUR. GODREJ CONSUMER HUL.16) is 9. GODREJ CONSUMER . These involve managing the relationship between the short-term assets and its short-term liabilities.0010 which indicates that inventory conversion period ‘s null hypothesis is accepted. ICP period of companies do not differ significantly. Type of Ratio ICP DCP CCP CCC Company name DABUR. H0=Average ratios of cash conversion period of companies do not differ significantly.NESTLE.NESTLE HUL. FINDINGS WCM ensure a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.3781) industry mean and company mean. Following are results by which company performing well in different ratios.

51 0.26 8. the role of working capital is ignored.66 0.26 6.92 0.61 0.24 87.57 8.76 5.36 1.79 20.32 24.31 22.39 0.Working capital and profitability In Conventional production function approach for determination of relationship between output and profit.25 0. It is therefore felt that there is the need to study the important role working capital in profit generating process.02 7.12 25.7 0.97 9.68 0.2 9.32 6.22 20.26 6.56 0.02 ITC HUL NESTLE .58 0.25 1.92 0.43 21.51 5.04 9.43 6. Name of Company Current Ratio Quick Ratio Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Year 200506 200607 200708 200809 200910 200506 200607 200708 200809 200910 200506 1.28 3.87 18.27 8.26 8.33 0.84 0.42 31. The impact of working capital has been examined by computing co-efficient of correlation and regression between profitability ratio and working capital.51 5. fixed capital is taken in to account as explanatory variable amongst others.83 29.33 1.82 3.41 41.05 5.42 0.46 0.04 8.57 0.34 0.99 9.99 12.2 9.73 0.

51 31.59 1.2 3.92 55.93 0.01 0.11 12.17 1.7 9.94 0.64 6.08 6.68 35.39 11.6 0.01 0.44 12.77 6.25 DEBT EQUITY RATIO 12.65 11.42 1.52 10.14 4.67 0.35 5.63 0.09 87.16 1.79 11.62 112.68 0.67 10.41 8.29 0.53 5.46 15.58 8.23 0.68 42.95 14.75 0.93 65.36 32.66 0.94 11.09 1.94 22.02 0.54 6.25 7.09 32.58 0.08 93.66 7.02 0.91 1.29 18.14 14.74 .86 19.29 9.04 0.01 0.37 59.24 0.3 39.86 2.3 9.44 13.61 5.02 9.28 8.74 14.07 1.99 0.2 0 0.74 20.37 93.18 8.8 7.52 10.34 1.7 9.4 8.68 0.67 8.08 1.1 99.82 0.31 7.11 32.72 0.03 0.33 19.33 0.65 10.96 5.24 TOTAL ASSETS TURNOVER RATIO 1.02 11.31 8.04 0.95 7.DABUR INDIA GODREJ CONSUMER 200607 200708 200809 200910 200506 200607 200708 200809 200910 200506 200607 200708 200809 200910 0.22 7.3 0.35 64.53 9.97 0.47 9.01 10.31 2.39 67.66 0.19 0.95 10.47 10.31 0.02 14.33 5.5 19.1 3.63 23.61 11.57 32.81 5.94 11.25 7.39 11.28 8.93 OPERATING PROFIT NAME OF COMPANY YEAR FIXED ASSETS TURNOVER RATIO 2.12 11.75 EARNINGS PER SHARE 2005-06 2006-07 ITC 2007-08 2008-09 2009-10 2005-06 2006-07 HUL 2007-08 2008-09 2009-10 2005-06 2006-07 NESTLE 2007-08 2008-09 2009-10 5.61 14.84 33.52 10.26 81.02 0.06 0.01 0 0 34.44 1.7 25.19 0.52 0.

398 Sig.796 Std.67 4.6 18.05 0.01 4.54 5 61.54 21.51 4.8293 a Predictors: (Constant). 0 . Model Summary Model 1 R 0.9 17.84 4.47 ANALYSIS OF HYPOTHESIS Ho1: There is no significant impact of dependable variable Earning per share to independent variable current ratios.055 df 7 17 Mean Square 882.06 1.56 6.01 22.47 4. inventory turnover. fixed assets turnover. Quick ratio.1 20. asset turnover. fixed assets turnover.05 0.18 4.84 1.17 21.3 8.53 3. debtor turover.03 0.94 4.4 6. current ratio ANOVA Model 1 Regression Residual Sum of Squares 6177.31 5.31 11.89 0. inventory turnover. Quick ratios. Error of the Estimate 7.32 4.33 19.18 1.44 14.297 F 14. debtor turnover.14 0.3 2.73 2.82 9.99 21.01 17. total assests turnover. investment turnover.98 2.12 0.45 18. total assets turnover.02 0.925 R Square 0.818 1042.92 3.67 4.05 0.6 4.29 8.19 0.856 Adjusted R Square 0.27 15.3 3. investment turnover.47 5.81 3.2005-06 DABUR INDIA 2006-07 2007-08 2008-09 2009-10 2005-06 GODREJ CONSUME R 2006-07 2007-08 2008-09 2009-10 7.

53 0.65 3. .61 0.433 -0.825 0. fixed assets turnover.883 0.8 0.657x6+2. x6=fixed assets turnover.639 t 0.01 0.204 Quick ratio -5.388 Sig.204x1-5.051 23.164 current ratio -7.825x5-4. inventory turnover.25 -0.657 total assests turnover 2. Error 23. 0.573 debtor turover 0.231 0.111 -0.071 1.14 0 0 Std. x7=total assets turnover By changing any value in above ratio we can see effect to EPS by this model.067 1. total assests turnover.961 a Dependent Variable: earning per share Standardized Coefficients Beta -0.432 0.873 24 a Predictors: (Constant). investment turnover. Following regression model can be made by this Y = a + bx = 12.206 investment turnover 2.517 -0.76 0. total assets turnover effect. x2=quick ratios.872x2-1. Quick ratio.05 which show there is accepted alternative hypothesis and by showing coefficient table we can see there is significant effect of debtor turnover .369 0.54 23. x4=debtor x5=investment turnover.573x3+0.28 3. x3=inventory turnover. fixed assets turnover.961x7 x1=current ratios.206x4+2.331 2.772 0. current ratio b Dependent Variable: earning per share Coefficients Unstandardize d Coefficients Model B 1 (Constant) 12. turnover.143 -0. debtor turover.164 -7.548 -5.Total 7219.31 -0.874 Findings Here in significance level of F value in ANOVAs table is less than 0.825 fixed assets turnover -4.872 inventory turnover -1.

111 df 7 17 24 Mean Square 121. 0 a Predictors: (Constant). Quick ratios. current ratio ANOVA Model 1 Regression Residual Total Sum of Squares 847.24 Sig. debtor turover. Quick ratio. debtor turnover. investment turnover. asset turnover.Ho1: There is no significant impact of dependable variable Operating profit independent variable current ratios.863 Adjusted R Square 0. investment turnover.141 7. Error of the Estimate 2.8193 a Predictors: (Constant). inventory turnover. total assests turnover. fixed assets turnover. Quick ratio.806 Std. total assets turnover. inventory turnover.986 135.126 983. current ratio b Dependent Variable: operating profit Coefficients . Model Summary Model 1 R 0. fixed assets turnover. total assests turnover. debtor turover.93 R Square 0. inventory turnover.949 F 15. investment turnover. fixed assets turnover.

651x1-19. Error 8.559x5+0.232 -0.318 0.258 0.377 0. x4=debtor turnover.171 0.249 t Sig.842 -0.477 8.407 0.401 0.007 0.191x4+0.967 -0. x7=total assets turnover By changing any value in above ratio we can see effect to Operating profit by this model.077 0.006 0.434 -0. quick ratio effect.426x7 a=constant.851 -3. Following regression model can be made by this Y = a + bx = 26. x2=quick ratios.559 -0. x3=inventory turnover.876 0.032 0.303 +15.999 -0.886 -2.907 0. x6=fixed assets turnover.657 0.103 1.587 -1.967x6+0.Model 1 (Constant) current ratio Quick ratio inventory turnover debtor turover investment turnover fixed assets turnover total assests turnover Unstandardized Coefficients B 26.04 -1.194 a Dependent Variable: operating profit Findings Here in significance level of F value in ANOVAs table is less than 0.106 0.315 Standardized Coefficients Beta 0.331 -1.026 2.303 15. .301 8.426 Std.05 which show there is accepted alternative hypothesis and by showing coefficient table we can see there is significant effect of fixed assets turnover .19E-02 0.651 -19.409 0.024 0. x1=current ratios. 3.587x2-1.353 0. x5=investment turnover.026x3+2.

007 -0.111 24 a Predictors: (Constant). Error of the Estimate 6.Analysis for capital structure Ho1: There is no significant impact of dependable variable Operating profit independent variable Earning per share. debt equity ratio b Dependent Variable: operating profit Coefficients .058 23 Total 983.036 a Predictors: (Constant).09 0. Model Summary Adjusted R Square 1 0.687 Residual 976. 0.054 42.437 F 0.054 Df 1 Mean Square 7.166 Sig.5144 ANOVA Model 1 Regression Sum of Squares 7. debt equity ratio Model R R Square Std.

37 5 5 debt equity ratio -0.272 1.79 -0. Error of the Estimate Change Statistics R Square Change 0.9737 R Square Adjusted R Square Std.046 -0. Correlations earning per share Pearson Correlation Sig. Error Beta 1. (1-tailed) N earning per share debt equity ratio earning per share debt equity ratio earning per share debt equity ratio 1 -0.046 F Change 0. F Change 0.2 1 0.05 which show there is rejected alternative hypothesis and by showing coefficient table we can see there is no significant.69 a Dependent Variable: operating profit Findings Here in significance level of F value in ANOVAs table is more than 0. 0.41 0 0. 5 5 Model Summary R Model 0.214 1 0.159 -0. 14.365 .764 DurbinWatson .21 .371 -2.Unstandardized Coefficients Model 1 B 21.103 (Constant) debt equity ratio Standardize d Coefficients Std. Comparison of individual company’s performance for capital structure Ho1: There is no significant difference of dependent variable EPS to the debt equity ratio of ITC.085 T Sig.73 0.445 5.14 df 1 1 df 2 3 Sig.

21 0.a Predictors: (Constant).05 so there is accepted null hypothesis.672 180.56 3.3 8 0.73 Upper Bound 17.3 Std.4 -0.042 0.73 a Predictors: (Constant). debt equity ratio b Dependent Variable: earning per share ANOVA Model 1 Regression Residual Total Sum of Squares 0.56 11. .731 3.144 Sig. 95% Confidenc e Interval for B Lower Bound 0. So we can see that there is no impact show of EPS to the debt equity ratio ITC.896 F 0.065 a Dependent Variable: earning per share Conclusion :.247 df 1 3 4 Mean Square 0. 0. Error 2.1 -68.602 505. debt equity ratio b Dependent Variable: earning per share Coefficients Unstandardized Coefficients Model 1 (Con stant) debt equit y ratio B 9.178 Standar dized Coeffic ients Beta t Sig.687 12.The value of F significant is more than 0.592 -641.

419 0.Ho1: There is no significant difference of dependent EPS variable to debt equity ratio of HUL. Correlations earning per share Pearson Correlation Sig.65 0.65 . (1-tailed) N earning per share debt equity ratio earning per share debt equity ratio earning per share debt equity ratio 1 0.419 F Change 2. 0. debt equity ratio b Dependent Variable: earning per share .119 . 5 5 Model Summary R R Square Adjusted R Square Std.24 0.647 1 0. Error of the Estimate Change Statistics R Square Change 0.96 DurbinWatson Model 1 a Predictors: (Constant). F Change 0.12 5 5 debt equity ratio 0.225 1.7119 0.16 df1 1 df2 3 Sig.

15 49. Error 1.69 debt equity 15.6 5 0.828 1.012 10. Change DurbinR Error of Statistics Watson Square the Estimate R F df1 df2 Sig.225 1.419 a Predictors: (Constant).7119 0.419 2.298 Upper Bound 11. debt equity ratio b Dependent Variable: earning per share Coefficients Unstandardized Coefficients M od el 1 B (Constant) 7.703 -18. 95% Confidence Interval for B Lower Bound 7.682 0.24 4.647 Standar dized Coeffici ents Beta t Sig.698 ratio a Dependent Variable: earning per share Findings The value of F significant is more than 0.05 so there is accepted null hypothesis.925 Std.24 0.16 1 3 0. So we can see that there is no impact show of EPS to debt equity ratio to HUL. .96 Model 1 0.469 0 0. F Square Change Change Change 0.ANOVA R R Squar e Adjusted Std.

7117 a Predictors: (Constant). debt equity ratio b Dependent Variable: earning per share ANOVA . Correlations earning per share Pearson Correlation earning per share debt equity ratio Sig.901 .Ho1: There is no significant difference of dependent variable EPS to debt equity ratio of Nestle.9 0.018 5 5 debt equity ratio -0. 5 5 Model Summary R R Square Adjuste Std.812 0. Error Change d R of the Statistics Square Estimate R Square F Change Change 0. F Change 0. 0.901 1 0.749 7. (1-tailed) earning per share debt equity ratio N earning per share debt equity ratio 1 -0.018 .812 13 df1 1 df2 3 DurbinWatson Sig.04 1.636 Mode l 1 0.

Error 4. 95% Confidence Interval for B Lower Upper Bound Bound 43.145 12.751 59.4 Standa rdized Coeffi cients Beta t Sig. 0. So we can see that there is impact show of EPS to debt equity ratio of NEstleI.33x1 a=constant.751 178.037 a Predictors: (Constant).78 -1276.47 F 12. debt equity ratio b Dependent Variable: earning per share Coefficients Unstandard ized Coefficient s B (Constant) 58.834 188.6 Model 1 Std. x1=debt equity ratio By changing any value in above ratio we can see effect to EPS by this model to NESTLE.09 -78.96 Sig.901 -3.018 73.400-677.409 949.Model 1 Regression Residual Total Sum of Squares 770. Following regression model can be made by this Y = a + bx = 58.04 debt equity -677.333 ratio a Dependent Variable: earning per share Findings: The value of F significant is less than 0.08 -0.16 df 1 3 4 Mean Square 770.05 so there is rejected null hypothesis. .6 0 0.

Correlations earning per share Pearson Correlation earning per share debt equity ratio Sig.Ho1: There is no significant difference of dependent variable EPS to debt equity ratio of Dabur.437 a Predictors: (Constant).7 6 0.76 1 0.76 . 0.6185 0.578 DurbinWatson F Chan ge 4. F Change 0.527 Model 1 0.11 df1 1 df2 3 Sig. Change Error of Statistic the s Estimate R Square Change 0.14 2.068 . 5 5 Model Summary R R Squar e Adjusted R Square Std.068 5 5 debt equity ratio 0. (1-tailed) earning per share debt equity ratio N earning per share debt equity ratio 1 0. debt equity ratio b Dependent Variable: earning per share .578 0.

03 Std. Error 0.14 a Predictors: (Constant).05 so there is accepted null hypothesis.11 Sig.009 9. 0.027 0. So we can see that there is no impact show of EPS to debt equity ratio of DABUR.572 0.572 1.14 t Sig.454 0.72 Df 1 3 4 Mean Square 1.383 F 4.148 2.146 Upper Bound 4.21 a Dependent Variable: earning per share Findings The value of F significant is more than 0.01 0. 95% Confide nce Interval for B Lower Bound 1.76 Standardi zed Coefficien ts Beta 6.ANOVA Model 1 Regression Residual Total Sum of Squares 1.583 23. debt equity ratio b Dependent Variable: earning per share Coefficients Unstandar dized Coefficien ts M od el 1 B (Constant) debt equity ratio 3. .436 -5.086 2.494 4.

5 0.248 F Change 0.498 .739 0. debt equity ratio b Dependent Variable: earning per share ANOVA .99 df1 df2 Sig. 5 5 Model Summary R R Square Adjuste dR Square Std.248 -0. Correlations Pearson Correlation earning per share debt equity ratio Sig. (1-tailed) earning per share debt equity ratio N earning per share debt equity ratio earning per share 1 -0.498 1 0. F Chang e 0.003 6. 0.898 DurbinWatson Model 1 1 3 a Predictors: (Constant).197 . Error of the Estimate Change Statistics R Square Change 0.Ho1: There is no significant difference of dependent variable EPS to debt equity ratio of Godrej.197 5 5 debt equity ratio -0.39 0.

Error 4.243 181.598 Mode l 1 Std.127 df 1 3 4 Mean Square 44.98 -0.498 -0. So we can see that there is no impact show of EPS to debt equity ratio of GODREJ CONSUMER.05 so there is accepted null hypothesis.988 Sig.Model 1 Regression Residual Total Sum of Squares 44.99 0.844 -28.39 a Dependent Variable: earning per share Findings The value of F significant is more than 0. debt equity ratio b Dependent Variable: earning per share Coefficients Unstandard ized Coefficient s B (Constant) debt equity ratio 12.847 Upper Bound 25. .884 136.413 -6.06 0.166 6.98 2. 95% Confidence Interval for B Lower Bound -0.807 Standardize d Coefficient s Beta t Sig. 0.884 45.39 a Predictors: (Constant).414 F 0.67 14.

trends or perception or ratio analysis. GODREJ CONSUMER For Working capital impact on profitability by comparing impact of dependent variable earning per share and operating profit to other different ratios companies played important and vital role. They were performing well in working management performance. By using ratios of different companies we can concluded following results For working capital practice following companies played important role Type of Ratio ICP DCP CCP CCC Company name DABUR. which ratios should consider and which should be ignored.DABUR INDIA HUL. GODREJ CONSUMER HUL. For Individual companies performance based on indicator Earning per share to Debt equity ratio effect to individual company Nestle played an vital role on it.NESTLE HUL.CONCLUSION In today’s scenario. DABUR.NESTLE. For Capital structure impact to profitability indicator operating profit to earning per share. They were managing it very well. even common man is an investor for them it is crucial decision whether to relay on tips. We can see that overall impact of FMCG ‘s 5 companies were no such impact to earning per share by operating profit. . Companies were have no significant relation between these two variable.

No. Vol.com . pp.55-67.2.1. Vol.9.19-40.XLIV.bseindia.Bibliography Journal of Financial and Strategic Decisions. pp. The Journal of Finance.com www. No. www.capitalline.