Working capital

management of Dabur.

IILM institute of management

Kashish Ahuja
Section A
PG20171083
PG (2017-19)
COMPANY PROFILE

Dabur is India's largest Ayurvedic medicine & natural consumer

products manufacturer. Dabur was founded in 1884 by SK Burman, a
physician in West Bengal, to produce and dispense Ayurvedic medicines.
Burman designed Ayurvedic medication for diseases such as cholera and
malaria. The company forayed into Personal Care category in 1940s with
the launch of Dabur Amla hair oil. Dabur demerged its Pharma business in
2003 and hived it off into a separate company, Dabur Pharma Ltd. German
company Fresenius SE bought a 73.27% equity stake in Dabur Pharma in
June 2008 at Rs 76.50 a share. The German company had also purchased
another 17.62% shares from the market through an open offer at the same
price.

Dabur's Healthcare Division has over 260 products for treating a range of
ailments and body conditions, from common cold to chronic paralysis. Dabur
International, a fully owned subsidiary of Dabur India formerly held shares in
the UAE based Weikfield International, which it sold in June 2012.

WORKING CAPITAL MANAGEMENT:

Working capital management is to manage the current assets and current
liabilities of a firm in such a way that a satisfactory level of working
capital is maintained, i.e. it is neither adequate nor excessive as both the
situations are bad for any firm. There should be no shortage of funds and
no working capital should be ideal.
The goal of working capital management is 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.
Factor Affecting working capital:

Nature of business: generally working capital is higher in

manufacturing compared to service based organizations

Volume of sales: higher the sale, higher the working capital required

Seasonality: peak seasons for sales need more working capital

Length of operating and cash cycle: longer the operating and cash
cycle, more is the requirement of working capital.

Some of the decisions taken in working capital management:

. An adequate supply of raw material.

. Cash to meet the operational payments.

. The ability to grant credit to customer.

. Investment in various current assets.

. Appropriate sources of fund to finance current assets.

. Proportion of long term and short term funds to finance current

assets.
Uses of working capital management:

. Adjusted net loss from operation.

. Purchase of non- current assets.
. Repayment of long term debt and short term debt.
. Redemption of redeemable preference share.
. Payment of cash dividend.

Inventory Management:

The ABC approach states that a company should rate items from A to C,
basing its ratings on the following rules:

A-items are goods which annual consumption value is the

highest; the top 70-80% of the annual consumption value of
the company typically accounts for only 10-20% of total
inventory items.
B-items are the interclass items, with a medium consumption
value; those 15-25% of annual consumption value typically
accounts for 30% of total inventory items.
C-items are, on the contrary, items with the lowest
consumption value; the lower 5% of the annual consumption
value typically accounts for 50% of total inventory items.
Cash Management:
Cash is a key part of management. Companies need to carry
sufficient levels of cash in order to ensure they can meet day-to-day
expenses. Cash is also required to be held as a cushion against unplanned
expenditure, to guard against liquidity problems. It is also useful to keep
cash available in order to be able to take advantage of market
opportunities.

The cost of running out of cash may include not being able to pay debts
as they fall due which can have serious operational repercussions,
including the winding up of the company if it consistently fails to pay bills
as they fall due.

However, if companies hold too much cash then this is effectively an idle
asset, which could be better invested and generating profit for the
company.

Cash management models

Baumol Method
Formula

CO = transaction costs (brokerage, commission, etc.)

D = demand for cash over the period

CH = cost of holding cash

Working capital of the year 2016 ending on 31st December(Dabur)

Current Assets Amount(R.s. Cr)

Current Investments 661.48

Inventories 615.56

Trade receivable 420.69

Cash and bank balance 54.16

Short term loans and advances 123.91

Other current assets 76.65

Current Liability Amount(R.s. Cr)

Short-term borrowings 86.51

Trade payable 931.34
Other current liabilities 187.75
Short-term provision 268.13

Sum of current assets = 1952.45

Sum of current liabilities = 1473.73
Current assets Current liabilities = Net working capital
1952.45 - 1473.73 = 478.72
Ratio

1.) Liquidity ratio

. Current ratio = Current assets/ Current liabilities

= 1952.45/ 1473.73
= 1.32
. Quick ratio = (current assets-inventories-prepaid exp)/CL
= 1952.45-615.56-76.65/ 1473.73
= 0.85