INSTITUTE OF PROFESSIONAL

EDUCATION & RESEARCH,

BHOPAL

MBA (SEMESTER 2)

SECTION – 3

Financial management

A study of working capital of Hindustan unilever

ltd

SUBMITTED TO: SUBMITTED BY:

Mr. Atul dubey ADIL SONI

AYUSH GARG

MASUMI MAFIWALE

TEJAS PANDEY

VARUN PATEL

VIVEK RAGHUWANSHI
INTRODUCTION

Hindustan Unilever Limited (HUL) is a British-Dutch manufacturing company headquartered

in Mumbai, India. Its products include foods, beverages, cleaning agents, personal care products,
water purifiers and consumer goods.

HUL works to create a better future every day and helps people feel good, look good and get more out
of life with brands and services that are good for them and good for others.

With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care,
toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the
Company is a part of the everyday life of millions of consumers across India. Its portfolio includes
leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s,
Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr,
Kissan, Kwality Wall’s and Pureit.

The Company has about 18,000 employees and has sales of INR 37660 crores (financial year 2018-
19). HUL is a subsidiary of Unilever, one of the world’s leading suppliers of Food, Home Care,
Personal Care and Refreshment products with sales in over 190 countries and an annual sales turnover
of €51 billion in 2018. Unilever has over 67% shareholding in HUL.

As of 2019 Hindustan Unilever portfolio had 35 product brands in 20 categories and employs 18,000
employees with sales of Rs. 34,619 crores in 2017-18.

Working capital management

Working capital management is one of the most significant functions of corporate management. Every
organization whether public and private, profit oriented or not, irrespective of its size and native of
business, needs adequate amount of working capital. Working capital is one of the powerful
measurements of the financial position.

Working capital is the capital of a business which is used in its day-to-day trading operations,
calculated as0.the current assets – current liabilities and measure company’s efficiency and its short-
term financial health. The popular formula to find out working capital is as under.

Working capital = current assets-current liabilities

The aim of working capital management is to manage the firm’s current assets and current liabilities
in a way that a satisfactory level of working capital is maintained. The efficient management of
working capital minimizes the cost and does much for the success of the business.
LITERATURE REVIEW
It deals with all the aspects of working capital of which in depth study has been carried out as
discussed below. Natarajan Sundar (1980) believes that working capital is an important term at a
national and a corporate level. According to him if we want to control the working capital at national
level, first we have to control the credits. He concludes that as much as the potential corporate level
investment is in the working capital, there is also important in fixed assets investment. Bhattacharyya
Hrishikes (1987) has tried to develop the tools and comprehensive theory of working capital
management from the system point of view. For this, finance manager always try to balance both the
things assets and capital of the balance sheet. His main objective is to see how the net worth of
business is increased without increasing the riskness of the business. Rao K. V. and Rao Chinta
(1991) have tried to analyze the strong and weak point of conventional techniques of working capital.
The result has been obviously mixed while some of conventional theory gave good results and others
failed to do his job. The authors have tried to evaluate the working capacity of the working capital
management from the help of conventional techniques e.g. ratio analysis. The article concludes that
working capital decision is a comprehensive and yardstick in evaluation of the working capital
efficiency. Hossain SaiyedZabid and Akon Md. Habibur Rahman (1997) are focused on the basic
objective of the working capital management i.e. to arrange the required working capital funds at the
right cost, right time and from right origin with a view to attaining differences between liquidity and
profitability. Singaravel, P. (1999) emphasis on the interdependence among working capital, liquidity
and profitability; of which adequate liquidity have given them the most first preference followed by
adequate working capital and profitability. The article is explained about the liquidity analysis in-
depth and stated its interrelationship with working capital and profitability. As the working capital,
liquidity and profitability three are described in a triangular position, none is dependable at the
satisfaction of the other. Alternatively, the working capital requirements are considered for long –
term funds which affect the profitability. Garg Pawan Kumar (1999) throws light on the study of
working capital trend and liquidity analysis of the Haryana’s selected public sector enterprises. The
study is most likely to suggest the components of the working capital requirements. After seeing the
facts author realized that the proper assessment need and predicting of working capital in the public
sector undertaking. Kaur Harsh V. and Singh Sukhdev (2013) this article emphasis on the ratio of
output to the input of cash conversion and setting up the days of operating cycle. The study examines
the relationship between the profitability and working capital achievement calculated by income to
total assets and income to current assets. Authors studied with listed companies in BSE 200 that is
consider more than 19 industries for the period 2000 to 2010. Kovelskiy (2015) analyzed the different
sources of financing the working capital of a firm and the main objective for effective utilization of
the working capital requirements. The study employed survey method for data collection and focuses
much on how smoothly gets completed the day- to- day operation of the firm; working capital
management plays a significant role.

OBJECTIVE

The main objective of this study is to examine the working capital management and practices in the
Hindustan unilever company

The market capitalization of HUL as on March 28, 2020 is RS 4,63,390.77

METHODOLOGY

The important variables considered for working capital are current ratio, quick ratio, inventory
turnover ratio, debtor’s turnover ratio and asset turnover ratio. The required data has been collected
from the database capitalize and annual reports of the companies for a period of six years. On the
basis of data collection here working capital and cash flow statement are analyzed.

Working Capital Analysis

CURRENT RATIO

Current Ratio is a liquidity ratio that measures a company’s ability to pay short –term and long –term
obligations. It is calculated by dividing current assets by current liabilities. A manufacturer normally
needs a current ratio of around 2:1, it means that current assets twice as large as current liabilities. A
higher current ratio indicates strong solvency position and is therefore considered better. The formula
of current ratio are as follow as

Current ratio = current assets / current liabilities

Table 1: Current Ratio of Hindustan Unilever Limited for the period of 2014-15 TO 2018-19

YEAR CURRENT RATIO

2014 – 2015 0.78
2015 - 2016 1.04
2016 – 2017 0.81
2017 – 2018 0.95
2018 – 2019 1.00
AVERAGE 0.92
SOURCE – MONEY CONTROL

As the standard current ratio is 2:1 the current ratio for five years from 2014 to 2019 are shown in
table – 1. As we can absorve the current ratio of the company is not up to the standard over the study
period. The average current ratio is 0.92. so it can be said that hul company are not good performing
for current ratio because their figure also showing their situation .

QUICK RATIO/ ACID TEST RATIO/LIQUID RATIO:

It is used to test the ability of a business to pay its short-term debts. It measures the relationship
between the liquid assets and current liabilities. The formula of quick ratio/ acid test ratio/liquid ratio
are as follow as;

Quick ratio = current assets – inventories / current liabilities

Table 2: Quick Ratio of Hindustan Unilever Limited for the period of 2014 to 2019

YEAR QUICK RATIO

2014 – 2015 0.49
2015 - 2016 0.70
 2016 – 2017 0.53
2017 – 2018 0.68
2018 – 2019 0.74
AVERAGE 0.53
Source – money control

The standard quick ratio is 1:1. A company with a quick ratio of less than 1 cannot currently fully pay
back its current liabilities. This ratio is considered to be much better and reliable as a tool for
assessment of liquidity position of the companies .Analysis of this ratio, it is the same position of
current ratio. During this study period the quick ratio of the hul company are not up to the standard
quick ratio

INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio is calculated by dividing the cost of goods sold for a period by the average
inventory for that period. Higher turnover ratio is more profitable for the business.

Inventory turnover ratio = cost of goods sold/ average inventory.

average inventory = total inventory /2

Table 3: Inventory Turnover Ratio of Hindustan Unilever Limited for the period of 2014 - 2019

YEAR Inventory turnover ratio

2014 – 2015 11.90
2015 - 2016 12.70
2016 – 2017 14.07
2017 – 2018 14.42
2018 – 2019 15.27
AVERAGE 13.672
Source - money control

In this analysis we identify that the continuous improvement of inventory turnover ratio through the
years from 2014 – 2019 . the inventory turnover ratio is increasing because the increasing rate of sales
is higher than average inventory. Generally it is important that hey are holding much more inventory,
which has make up the cash balance.

DEBTORS TURNOVER RATIO

The Debtors Turnover Ratio also called as Receivable Turnover Ratio shows how quickly the credit
sales are converted into the cash. This ratio measures the efficiency of a firm in managing and
collecting the credit issued to the customers. The formula of debtors turnover ratio are as follow as;

Debtors turnover ratio = annual net credit sales / average accounts receivables Where, accounts
receivables = trade debtors + bills receivables

Table 4: Debtors Turnover Ratio of Hindustan Unilever Limited for the period of 2014-2019
 YEAR Debtors turnover ratio
2014 – 2015 31.31
2015 - 2016 30.43
2016 – 2017 28.24
2017 – 2018 29.68
2018 – 2019 25.15
AVERAGE 22.7

From the above table we can say that the average collection period of hul is decreasing. Moreover hul
is collecting their debts for on an average 22.7 times in a year A low ratio stand up the company bad
collection period and it’s also indicating of low cash balance.

FIXED ASSET TURNOVER RATIO

The fixed Asset Turnover Ratio is an efficiency ratio that measures a company’s ability to generate
sales from its assets by comparing net sales with average total assets. The formula of debtors
turnover ratio are as follow as;

Fixed asset turnover ratio = sales / net fixed assets

Table 5: Fixed Asset Turnover Ratio of Hindustan Unilever Limited for the period of 2014-2019

YEAR Fixed asset turnover ratio

2014 – 2015 6.36
2015 - 2016 6.10
2016 – 2017 7.06
2017 – 2018 6.74
2018 – 2019 6.68
AVERAGE 6.588

From the above table we can say that the fixed assets turnover ratio of Hindustan Unilever Limited is
better

Conclusion –