A

PROJECT REPORT
ON
“WORKING CAPITAL MANAGEMENT OF DABUR INDIA
LIMITED”

IN THE PARTIAL
FULFILLMENT OF THE
REQUIREMENT FOR
THE AWARD OF THE
DIPLOMA OF
POST GRADUATE DIPLOMA IN BUSINESS ADMINISTRATION
(PGDBA)
(SESSION 2007-2011)

SUBMITTED BY:
RACHNA MEHTA
REG. NO. 2007200
PGDBA – (HR)

SYMBIOSIS CENTER FOR DISTANCE LEARNING

PUNE
 DECLARATION

I Sudhanshu Kumar Ojha, Reg. No 200756257 student of PGDBA (Finance) of

Symbiosis Center for distance learning, Pune hereby declare that the project report on

“WORKING CAPITAL MANAGEMENT OF DABUR INDIA LIMITED”, is an

original and authenticated work done by me. I further declare that it has not been

submitted elsewhere by any other person in any of the university for the award of any

degree or diploma.

SUDHANSHU KUMAR OJHA

 ACKNOWLEDGEMENT

Searching the various opportunities for sales is the project which requires lot of hard

work, patience and true commitment. Every work requires lot of hard work, patience and

true commitment. Every work requires a commitment but this commitment is washed

away in rain when there is guidance.

I express my sincere gratitude to my industry guide MR. DINESH GUPTA, unit

commercial manager, DABUR INDIA LTD., for his dedicated guidance, continuous

support and cooperation throughout my project, without which the present work would

not have been possible.

I would also like to thank the entire team of DABUR INDIA LTD., their constant

support and help in the successful completion of my project.

SUDHANSHU KUMAR OJHA

 TABLE OF CONTENT

 INTRODUCTION TO DIL
 Objective
 Limitations
 Introduction
 Company’s History
 Dabur At A Glance
 Daburs Major Sbu’s
 Board Of Directors
 Bankers
 Dabur Cores Value
 Milestone To Success
 Dabur World Wide
 It Initiatives
 Strategic Intents
 Products

 WORKING CAPITAL
MANAGEMENT
 Conceptual view
 Components
 Principles
 Needs
 Factor determining wc requirements
 Financing of wc requirement
 Negative wc
 Sources and uses of wc
 Comparison of dil’ wc with other companies
  Cash management
 Receivables management
 Inventory management

 FINANCIAL STATEMENT
ANALYSIS
MEANING
RATIO ANALYSIS OF WC

 PERFORMANCE HIGHLIGHT OF
DIL
DABUR ON GROWTH PATH

 CONCLUSION

 BIBLIOGRAPHY
 To understand the working capital conceptuality.

 To understand the trend exhibit by working capital.

 To calculate the working capital of Dabur and compare it with

other FMCG’s in India.

 To get various financial data of Dabur and other FMCG

companies in India and compare them.

 Thereafter a brief comparison of working capital of all the FMCG

companies and Dabur was done in order to find that which
company has managed its cash flows more effectively and
efficiently.
The following limitations have been faced in this project inspite 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 accounting year from
January to December while some others have it from April to March.
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 preceeding previous year.
This project deals with working capital management of Dabur India Ltd. Dabur India

Ltd., is the fourth largest FMCG company, the basic meaning of working capital in the

simple language in CURRENT ASSETS less CURRENT LIABILITIES.

The working capital management refers to the working capital, or not to be more precise,

the management of current assets. Working capital also called net current assets is the

excess of current assets over current liabilities. All organization has to carry working

capital in one form or the other. The efficient management of working capital is

important from the point of view of both the liquidity and profitability.

Poor management of working capital means that the funds are unnecessarily tied up in

idle assets hence reducing liquidity and also reducing the ability to invest in productive

assets such as plant and machinery, so affecting the profitability.

 ABOUT DABUR
Dabur India Limited is India’s fourth largest FMCG company with interests in Health
care, Personal care and F. Building on a 120-year legacy of quality and experience, today
Dabur has a turnover of $340 million food products.

The company has been instrumental in reviving traditional remedies and health care
solutions, making them popular brands of nature-based products backed by modern
scientific research and state-of-art manufacturing. Dabur’s products are available for
people in more than 50 countries across the world, helping them move towards a healthy,
natural and holistic lifestyle.

Dabur’s basket of products include powerful super brands that have become a household
name in India and very popular in our international markets. Some of them are:

Dabur Amla Hair Oil :-

The first branded herbal hair oil that become our flagship brand in the hair oils category
and has been associated with popular stars of the silver screen.

Dabur chyawanprash :-
India’s largest selling brand of traditional Ayurvedic revitaliser.

Vatika :-
The premium range of natural hair

Hajmola :-
The market leader in digestive product
With 75% share of Indian market.
 FOUNDING THOUGHTS

“What is the life worth which cannot bring

comfort to others”

The story of Dabur began with a small, but visionary endeavor by Dr.S.K.Burman, a

physician tucked away in Bengal. His mission was to provide effective and affordable

cure for ordinary people in far-flung villages. With missionary zeal and fervor, Dr.

Burman undertook the task of preparing natural cures for the killer diseases of those days,

like cholera, malaria, plague.

Soon the news of his medicines traveled, and he came to be known as the trusted ‘Daktar’

or doctor who came up with effective cures. And that is how his venture Dabur got its

name-derived from the Devanagri rendition of Daktar Burman. Dr.S.K.Burman set up

Dabur in 1884 to produce and dispense Ayurvedic medicines. Reaching out to a wide

mass of people who had no access to proper treatment. Dr.Burman’s commitment and

ceaseless effprts resulted in the company growing from a fledging medicine manufacturer

in a small Calcutta house, to a household name that once evokes trust and reliability.
 COMPANY’S HISTORY

 1984 Birth of Dabur

 1896 Setting up a manufacturing

plan

 1900 Ayurvedic medicines

 1919 establishment of research

laboratories

 1920 Expands further

 1936 Dabur India

(Dr.S.K.Burman) Pvt. Ltd.

 1972 Shift to Delhi

 1979 Sahibabad factory / Dabur

research foundation

 1986 Public limited company

 1992 Joint Venture with

Agrolimen of Spain

 1993 Cancer treatment

 1994 Public issues

 1995 Joint Ventures

 1996 3 separate divisions

 1997 Food division / Project

STARS

 1998 Professionals to manage

the company

 2000 turnover of Rs. 1000 crore

 2003 Dabur emerges Pharma

Business

 2005 Dabur acquires Balsara

 2006 Dabur announces bonus

after 12years &
crosses $2 Bin Market Cap,
adopts US GAAP
 DABUR AT GLANCE
Dabur India Limited has marked its presence with some very significant

achievements and today commands a market leadership status. Our story of success is

based on dedication to nature, corporate and process hygiene, dynamic leadership and

commitment to our partners and stakeholders. The results of our policies and

initiatives speak for themselves.

 Leading consumer goods company in India amongst turnover of Rs.1899.57

Crore ( FY02 )

2 major strategic business units (SBU) – Consumer Care Division (CCD)

and Consumer Health Division (CHD)

3 subsidiary Group Companies – Dabur food, Dabur Nepal and Dabur

International and 3 step down subsidiaries of Dabur International – Asian

Consumer Care in Bangladesh, African Consumer Care in Nigeria and

Dabur Egypt

 13 Ultra modern manufacturing units spread around the globe

 Products marketed in over 50 Countries

 Wide and deep market penetration with 47 C&F agents, more than 5000

distributors and over 1.5 million retail outlets all over India
CCD, dealing with FMCG Products relating to
Personal Care and Health Care

 Leading brands –

 Dabur – The Health Care Brand

 Vatika – Personal Care Brand
 Anmol – Value for Money Brand
 Hajmola – Tasty Digestive Brand
 Dabur Amla, Chyawanprash and Lal Dant Manjan with Rs.100 Crore
turnover each

 Vatika Hair Oil & Shampoo the high growth brand

 Strategic Positioning of honey as a food product, leading to market leadership
( over 40% ) in branded honey market.
 Dabur Chyawanprash the largest selling Ayurvedic medicine with over 65%
market share.
 Leader in herbal digestives with 90% market share of digestive tablets category.
 Dabur Lal Tail tops baby massage with 35% of total share.
CHD ( Consumer Health Division ), dealing with
classical Ayurvedic medicines

 Has more than 250 products sold through prescriptions as well as over the
counter.

 Major categories in traditional formulations include Proprietary Ayurvedic

medicines developed by Dabur include:
 Nature care Isabgol
 Madhuvaani
 Trifgol

 Division also works for promotion of Ayurveda through organized community

of traditional practitioners and developing fresh batches of students.
 DABURS MAJOR STRATEGIC
BUSINESS UNITS
Dabur has three major strategic business units (SBUs) namely:

 Family products division with a share of in its total sales.

 Dabur Ayurvedic specialties having a share of in its total sales.

 Health care products with a share of in its total sales.

DABUR MAJOR STRATIC BUSINESS UNITS
Dabur has five major strategic business units (SBUs) namely:

 Consumer Care products division with a share of 68% in its total sales.

 Consumer health care products having a share of 7% in its total sales.

 International product with a share of 13% of its total sales.

 Food products with a share of 11% of its total sales.

 Other products with a share of 1% of its total sales.

 BOARD OF DIRECTORS

Mr. V.C Burman Chairman

Dr. Anand Burman Vice
President
Mr. Pradeep Burman
Director
Mr. Amit Burman
Director
Mr. P.D Narang Director
 Mr. Sunil Duggal
Director
HH Maharaja Gaj Singh
Director
Mr. R.C Bhargava
Director
Mr. P.N Vijay
Director
Mr. Stuart Edward Purdy
Director
Dr. S Narayana Director

GM (finance) and company seceratary

Mr. Ashok Jain

AUDITORS
M/s G.Basu & co.
Charted Accountant
INTERNAL AUDITORS
Price Waterhouse

BANKERS
 Punjab National Bank
 Standard Charted Bank
 HSBC Bank
 State Bank of India
 ABN Amro Bank
 Citibank NA
 United Bank of India
 HDFC Bank
 IDBI Bank

DABUR’S CORE VALUES

 VISION
“Dedicated to the health and well being of every household”

PRINCIPLES
OWNERSHIP
This is our company. We accept personal responsibility and accountability to meet
business needs.

PASSION FOR WINNING

We all are leaders in our area of responsibility, with a deep commitment to deliver
results. We are determined to be the best at doing what matters most.

PEOPLE DEVELOPMENT
People are our most important asset. We add value through result driven training and we
encourage &reward excellence.

CONSUMER FOCUS
We have superior understanding of consumer needs and develop products to fulfill them
better.
 TEAM WORK
We work together on the principle of mutual trust & transparency in a boundary-less
organization. We are intellectually honest in advocating proposals, including recognizing
risks.

INNOVATION
Continuous innovation in products &processes is the basis of our success.

INTEGRITY
We are committed to the achievement of business success with integrity. We are honest
with consumers, with business partners and with each other.
 MILESTONE TO SUCCESS

Dabur India Ltd., made its beginnings with a small pharmacy, but has continued to learn

and grow to a commanding status in the industry. The company has gone a long way in

popularizing and making easily available a whole range of products based on the

traditional science of Ayurveda. And it has set very high standards in developing

products and processes that meet stringent quality norms. Also it grows even further,

Dabur will continue to mark up on major milestones along the way, setting the road for

others to follow.

 1884 – Established by Dr.S.K.Burman at kolkata

 1896 – First production unit established at Garhia

 1919 – First R&D unit established

 Early 1900s – Production of AYURVEDIC medicines

Dabur identifies nature-based Ayurvedic medicines as its area of specialization. It

is the first company to provide health care through scientifically tested and

automated production of formulations based on our traditional science.

 1930 – Automation and upgradation of Ayurvedic products manufacturing

initiated

 1940 – Personal care through Ayurveda

 Dabur introduces Indian consumers to personal care through Ayurveda, with the

launch of Dabur Amla hair oil. So popular is the product that it becomes the

largest selling hair oil brand in India.

 1949 – Launched Dabur Chyawanprash in tin pack

Widening the popularity and usage of traditional Ayurveda products continues.

The ancient restorative Chyawanprash is launched in packaged form, and

becomes the first branded Chyawanprash in India.

 1957 – Computerization of operations initiated

 1970 – Entered Oral Care & Digestive segment Addressing rural markets where

home made oral care is more Popular then multinational brands, Dabur

introduces Lal Dant Manjan. With this a conveniently packaged herbal tooth

powder is made available at affordable costs to the masses.

 1972 – Shifts base to Delhi from Kolkata

 1978 – Launches Hajmola tablet

Dabur continues to make innovative products based on traditional formulations

that can provide holistic care in our daily life. An Ayurvedic medicine used as a

digestive aid is branded and launched as the popular Hajmola tablet.

 1979 – Dabur Research Foundation set up

 1979 – Commercial production starts at Sahibabad, the most modern herbal

medicines plant at the time

 1984 – Dabur completes 100 years

 1988 – Launches pharmaceutical medicines

 1989 – Care with fun

The Ayurvedic digestive formulation is converted into a children’s fun

product with the launch of Hajmola Candy. In an innovative move, a curative

products is converted to a confectionary item for wider for wider usage.

 1994 – Comes out with first public issue

 1994 – Enters oncology segment

 1994 – Leadership in health care

Dabur establishes its leadership in health care as one of only

Two companies worldwide to launch the anti-cancer drug

Intaxel (Paclitaxel).

 1996 – Enters foods business with the launch of Real Fruit juice.
 1996 – Real blitzkrieg

Dabur captures the imagination of young Indian consumers with the launch of

Real Fruit Juices- a new concept in the Indian food market. The first local brand

of 100% pure natural fruit juices made to international standards, Real becomes

the fastest growing and largest selling brand in the country.

 1998 – Burman family hands over management of the company to professionals.

 2000 – The 1,000 Crore mark

Dabur establishes its market leadership status by staging a turnover of Rs.1000

Crores. Across a span of over a 100 years, Dabur has grown from a small

beginning based on traditional health care. To a commanding position amongst an

august league of large corporate businesses.

 2001 – Super specialty drugs

With the setting up of Dabur Oncology’s sterile cytotoxic facility, the company

gains entry into the highly specialized area of cancer therapy. The state-of-art

plant and laboratory plant in the UK have approval from the MCA of UK. They

follow FDA guidelines for production of drugs specifically for European and

American markets.

 2002 – Dabur records sales of Rs.1163.19 crore on a net profit of Rs.64.4 crore.

 2003 – Dabur demerges Pharmacueitcals business

 Maintaining global standards

 As a reflection of its constant efforts at achieving superior quality standards,

Dabur became the first Ayurvedic products company to get ISO 9002

Certification.

 Science for nature

 Reinforcing its commitment to nature and its conservation, Dabur Nepal, a

subsidiary of Dabur India, has set up fully automated greenhouses in Nepal. This

scientific Landmark helps to produce sapling of rare medicinal plants that are

under threat of extinction due to ecological degradation.

 2005 – Dabur acquires Balsara

 2006 – Dabur announces bonus after 12 years

 2007 – Dabur crosses $2 bin market cap, adopts US GAAP.

 2008 – Dabur crosses $4 bin market cap, adopts US GAAP.

 DABUR WORLDWIDE
Dabur’s mission on popularizing a natural lifestyle transcends national boundaries. Today

there is global awareness of alternative medicine, nature-based and holistic lifestyles and

an interest in herbal products. Dabur has been in the forefront of popularizing this

alternative way of life, marketing its products in more than 50 countries all over the

world.

Our products world wide

We have spread ourselves wide and deep to be in close touch with our overseas

consumers.

 Offices and representatives in Europe, America, Africa.

 A special health care and personal care range successfully selling in markets of

the Middle East, Far East and several European Countries.

 Inroads into European and American markets that have good potential to

resurgence of the back-to-nature movement.

 Export of Active Pharmaceutical Ingredients (APIs), manufactured under strict

international quality benchmarks, to Europe, Latin America, Africa, and other

Asian countries.
 Export of food and textile grade natural gums, extracted from traditional plant

sources.

Partnerships and Production

 Strategic partnerships with leading multinational food and health care

companies to introduce innovations in products and services.

 Manufacturing facilities spread across 3 overseas location to optimize production

by utilizing local resources and the most modern technology available.

 ACCOLADES
February 23, 2006 : Dabur India the first company to achieve Rs.500 crore

manufacturing milestone in Uttarnchal. It is the largest employer in that region.

January 16, 2006 : Dabur bags ICSI National Award for excellence in corporate

governance.

September 26, 2005 : Bagged the UHYOG RATNA award for Dabur’s commendable

contributions for economic development in the state of Himachal Pradesh.

July 08, 2005 : Won UDYOG RATNA award for Dabur’s immense contributions to the

states economic development by the government of Uttaranchal.

2003 : Dabur India limited gets crisil corporate governance and value creation rating.

2002 : Dabur Nepal Pvt. Ltd. Gets certificate of hazard analysis and critical control point
(HACCP) plan verification for manufacturing of fruit juices and tomato puree.

2001 : Dabur gets certificate of good manufacturing practices to manufacture Ayurveda,

siddha, or unani drugs.
1995 : Dabur becomes the first Ayurvedic products company in India to get ISO 9002

Certification.

CORPORATE GOVERNANCE

Good corporate governance and transparency in action of the management is key to a

strong bond of trust with company’s stakeholder. Dabur understands the importance of

good governance and hence constantly avoided an arbitrary decision making process. Our

initiatives towards this end include:

 Professionalisation of the Board

 Lean and active Board (reduced from 16 to 10 members)

 Less number of promoters on the Board

 More professionals and independent Directors for better management

 Governed through Board committees for Audit, Remuneration, Shareholder

Grievance, Compensation and Nominations

 Meets all corporate Governance code requirements of SEBI

 CORPORATE CITIZENSHIP
When our Founder Dr.S.K.Burman first established Dabur, he had a vision the saw

beyond the profit motive. In his words, “What is that life worth which cannot bring

comfort to others”. This idle of a humane and equitable society led to initiatives taken

to give back some part of what Dabur has gained from the community.

Our major initiatives in the Social sector include:

 Establishment of the Sustainable Development Society, or Sundesh, in 1993 a

non-profit organization to promote research and welfare activities in rural

areas.

 Promoting health and hygiene amongst the underpriviledged through the

Chunni Lal Medical Trust.

 Organizing the Plant and Life Program for school children to create

environmental awareness amongst young minds.

OUR COMMITMENT TO THE ENVIRONMENT

Ancient wisdom of conversation

From times immemorial, Indian sages and men of wisdom have understood and

appreciate the value of nature and its conservation. Our ancestors recognized that if we

grabbed from nature beyond what was healthy, it would lead to all round degradation,

and even the extinction of humanity. That is why nature was sanctified and worshipped in

the form of gods and goddesses.

Dabur upholds the tradition

Today, we at Dabur also value nature’s bounty. Without the fruits of nature, the vision of

Dabur would never have been fulfilled. And that is the reason for our unfailing

commitment to ecological conservation and regeneration. We would like to follow the

principles of our ancient texts, which says:

“Delhi dadamite” – “you give me, and I give you”.

 IT INITIATIVES
In Dabur India Limited knowledge and technology are key resources, which have helped

the company achieve higher levels of excellence and efficiency. Towards this overall

goal of technology-driven performance, Dabur is utilizing Information Technology in a

big way. This will help in integrating a vast distribution system spread all over India and

across the world. It will also cut down costs and increase profitability.

Our major initiatives

 Implementation of Manufacturing process ERP for fronted operations.

 Supply chain and working capital management to control manufacturing,

distribution planning, invoicing, receivables, banking and schemes.

 Integration with Baan (backend ERP) initiated last year in production units and

head office.

 Intranet based Employee Management System for payroll and HRIS.

Future Challenges
 Target of end-to-end networking by end of financial year 2002-03.

 Extending the Supply Chain Automation to both ends, in secondary sales and e-

Procurement.

 Launch of e-Procurement using Free Markets’ online bidding engine.

  Vendor managed inventories for fast moving raw materials and packaging

materials, and outsourced manufacturers’ systems to be integrated with the BaaN

ERP system.

STRATEGIC INTENT

We intended to significantly accelerate profitable growth. To do this we will:

 Focus on growing our core brands across categories, reaching out to a new

geographies, within and outside India, and improve operational efficiencies by

leveraging technology.

 Be the preferred company to meet the health and personal grooming needs of our

target consumers with safe, efficacious, natural solutions by synthesizing our deep

knowledge of ayurveda and herbs with modern science.

 Provide our consumers with innovative products within easy reach.

 Build a platform to enable Dabur to become a global ayurvedic leader.

 Be a professionally managed employer of choice, attracting, developing and

retaining quality personnel.

 Be responsible citizens with a commitment to environmental protection.

Provide superior returns, relative to our peer group, to our shareholders

 HEALTH CARE
PRODUCTS
 Dabur Chyacanprash
 Dabur Glucose D

 Hajmola Mast Masala

 Anardana
 Hajmola
 Hajmola Candy
 Pudin Hara(liquid and pearl)
 Pudin hara G
 Dabur Hingoli
  Dabur Lal Tail
 Dabur baby
Olive Oil
 Dabur Janam
Ghutti

 Shilajit Gold
 Nature Care
 Sat Isabgol
 Shilajit
 Itch Guard
 Ring Guard
 Back- Aid
 Shankha Pushpi
 Dabur Balm
 Sarbyna strong
  Amla Hair Oil
 Amla Lite Hair Oil
 Vatika Hair Oil
 Anmol Sarson
Amla

 Vatika Henna Conditioning

Shampoo
 Vatika Anti-Dandruff Shampoo
 Anmol Natural Shine Shampoo
 Anmol Silky Black Shampoo
 Vatika Root Strengthening
Shampoo
 Gulabri
 Vatika Fairness Face
Pack
 Vatika Saffron Glow
Soap With Sandal

 Dabur Red Gel

 Dabur Red Toothpaste
 Dabur Lal Dant Manjan
 Dabur Binaca Toothpaste
 Babool Toothpaste
 Miswak Toothpaste
 Promise Tooth paste
 Ayurvedic Products

 Dashmularisth
 Ashokaristha
 Lauhasava
 Mahanarayan Tail
 Juritap
 Madhuvani
 Lavan Bhaskar Churan
WORKING CAPITAL MANAGEMENT

WORKING CAPITAL – CONCEPTUAL VIEW

“Working Capital, also called net current assets, is the excess of current assets

over current liabilities. All organizations have to carry working capital in one form or

another. The efficient management of working capital is important from the point of

view of both liquidity and profitability. Poor management of working capital means

that funds are unnecessary tied up in idle assets hence reducing the ability to invest in

productive assets such as a plant and machinery, so affecting the profitability”.

Working capital management may be defined as the management of firm’s

sources and uses of working capital in order to maximize the wealth of the shareholders.

The proper working capital management requires both the medium term planning(say

upto three years) and also the immediate adaptations to changes arising due to

fluctuations in operating levels of the firm.

 CONCEPT OF WORKING CAPITAL

1) GROS WORKING CAPITAL (TOTAL WORKING CAPITAL) :

The gross working capital refers to the firm’s investment in all the current assets

taken together. The total investments in all the individual current assets is the

gross working capital. For example, if a firm has a cash balance of Rs.50,000 ,

debtor of Rs.70,000 and inventory of raw materials and finished goods has been

assessed at Rs.1,00,000 , then the gross working capital of the firm is

Rs.2,20,000(i.e. Rs.50,000 + Rs.70,000 + Rs.1,00,000).

2)NET WORTH CAPITAL : The term working capital may be defined as the

access of total current assets over total current liabilities. The current liabilities refers to

those liabilities which are payable with in a period of one year. The extent, to which the

payments of these current liabilities are delayed, the firm gets the availability of funds for

that period. So, a part of the funds required to maintain current assets is provided by

current liabilities and the firm will be required to invest the funds in only those current

assets which are not financed by the current liabilities.

The gross concept is sometimes preferred to the net concept of working capital for the

following reasons:

a) It enables the enterprise to provide correct amount of working capital at the right

time.
 b) Every management is more interested in the total current assets with which it has

to operate than the sources from where it is made available.

c) The gross concept takes into consideration the fact that every increase in the funds

of the enterprise would increase its working capital.

d) The gross concept of working capital is more useful in determining the rate of

return on investments in working capital.

The net working capital concept, however, is also important for the following reasons:

a) It is a qualitative concept which indicates the firm’s ability to meet its operating

expenses and short-term liabilities.

b) It indicates the margin of protection available to the short-term creditors, i.e., the

excess of current assets over current liabilities.

c) It is an indicator of the financial soundness of an enterprise.

d) It suggests the need for financing a part of the working capital requirements out

of permanent sources of funds.

COMPONENTS OF WORKING CAPITAL

A large amount of working capital remains tied up in various working capital

components like :

a) Raw materials

b) Work-in-progress

c) Finished goods

d) Receivables etc.
An industry has to hold raw materials and work-in-progress to maintain production flow

and finished goods to meet the timely needs of its customers. The working capital

requirement is, therefore, directly linked with the level of inventory and the time taken by

the purchaser of the goods to pay the amount.

1) RAW MATERIALS:

The stocking of raw materials is linked to a number of factors like level of production,

location of resources of supply and availability position, storing capacity of godowns,

seasonal availability and price etc.

2) WORK-IN-PROGRESS:
Every industry is essentially required to carry some stocks at various stages which lie as

semi finished goods at various stages of production.

3)FINISHED GOODS:

The quantum and value of finished goods depends upon the type and variety of products.

This also depends upon the lot sizes, which are required to be delivered, and availability

of inspection staff. The seasonal effect in some products like fans, coolers, refrigeration,

air conditioner etc, can also force to carry a higher level of finished goods inventory in

the off-season.
4) RECEIVABLES:
The amount of money outstanding at a particular point of time representing realization

against sales is termed as receivables. These receivables are influenced by a number of

factors like credit policy, market strategy, pricing policy, type of buyers, credit allowed

by companies etc.
 CLASSIFICATION OF WORKING CAPITAL
Working capital may be classified into two ways:

a) on the basis of concept

b) on the basis of time

On the basis of concept, working capital is classified as gross working capital and net

working capital. This classification is important from the point of view of the financial

manager. On the basis of time, working capital may be classified as:

a) Permanent or fixed working capital.

b) Temporary or variable working capital.

1) Permanent or fixed working capital:

It is the minimum amount which is required to ensure effective utilization of fixed

facilities and for maintaining the circulation of current assets. There is always a minimum

level of current assets, which is continuously required by enterprise to carry out its

normal business operations. For example, every firm has to maintain a minimum level of

raw materials, work-in-progress, finished goods and cash balances.

2) Temporary or variable working capital

It is the amount of working capital which is required to meet the seasonal demands and

some special exigencies. Variable working capital can be further classified as seasonal
working capital and special working capital. Most of the enterprise have to provide

additional working capital to meet the seasonal and special needs.

PRINCIPLES OF WORKING CAPITAL

The basic objective of working capital management is to avoid over investment or under

investment in current assets, as both the extremes involve the adverse consequences.

Over investment in current assets may lead to reduced profitability due to cost of block

funds, extra storing space required, extra efforts for follow up, possibility of malpractice

etc.

The objective of working capital management is to ensure

optimum investment in current assets. In other words, working capital management

intends to ensure that the investment in current assets is reduced to the minimum possible

extent. However, the normal of the organization should not be affected adversely. If the

normal operations of the organizations are affected adversely, reducing the investment in

current assets is fruitless.

NEED OR OBJECTS OF WORKING CAPITAL

Working capital is needed for the following purposes:

1) For the purchase of raw materials, components and spares.

2) To pay salaries and wages.

3) To incur day-to-day expenses and overhead costs such as fuel, power and office

expenses etc.

4) To meet the selling costs as packaging ,advertising etc.

5) To provide credit facilities to the customers.

6) To maintain the inventories of raw material, work-in-progress, stores and spares

and finished stock.

 DEBTOR

CASH FINISHED GOODS

RAW MATERIALS WORK IN PROGRESS

IMPORTANCE OF WORKING CAPITAL

Working capital is the lifeblood and nerve center of a business. Just as circulation of

blood essential in the human body for maintaining life, working capital is very essential

to maintain the smooth running of a business. No business can run successfully without

an adequate amount of working capital. The main advantages of maintaining adequate

amount of working capital are as follows:

1) Solvency of the business:

Adequate working capital helps in maintaining solvency of the business by

providing uninterrupted flow of production.

2) Goodwill:
Sufficient working capital enables a business concern to make prompt payments

and hence help in creating and maintaining goodwill.

3) Easy loans:
A concern having adequate working capital, high solvency and good credit

standing can arrange loans from banks and other on easy and favorable terms.

4) Cash discounts:
Adequate working capital is also enables a concern to avail cash discounts in the

purchases and hence it reduces costs.

5) Regular supply of raw material:

Sufficient working capital ensures regular supply of raw materials and continuous

production.

6) Regular payment of salaries, wages and other day-to-day

commitments:
A company which has ample working capital can make regular payments of

salaries, wages, and other day-to-day commitments which raise the morale of its

employees, increases their efficiency, reduces wastages and costs and enhances

production and profits.

7) Ability of face crisis:
Adequate working capital enables a concern to face business crises in

emergencies such as depression because during such periods, generally, there is

much pressure on working capital.

8) High Morale:
Adequate of working capital creates an enviroment of security, confidence, high

morale, and creates overall efficiency in business.

9) Quick and regular return on investment:

Every investor wants a quick and regular return on his investments. Sufficiency of

working capital enables a concern to pay quick and regular dividends to its

investors, as there may not be much pressure to plough back profits. This gains

the confidence of its investors and creates a favorable market to raise additional

funds in the future.

 FACTORS DETERMINING WORKING
CAPITAL REQUIREMENT

The working capital needs of a firm are determined and influenced by various factors. A

wide variety of considerations mat effect the quantum of working capital required and

these considerations may vary from time to time. Following are some of the factors

which are relevant in determining the working capital needs of the firm.

1) Basic nature of business :

The working capital requirement is closely related to the nature of the firm. In case of

FLEX ENGINEERING LTD., a manufacturing company, different types of

production processes are performed. One unit of raw material introduced in the

production schedule may take a long period before it is available as finished goods for

sale. Funds are blocked not only in raw materials but also in labor expenses and

overheads at every stage of production. The operating cycle is usually a longer one

and sales are made generally on credit terms. So, there is always a requirement of

substantial amount of working capital.

2)Business cycle fluctuation :

Different phases of business cycle i.e. boom, recession, recovery etc. also affect the

working capital requirement. In case of recession period there is usually a dullness in

business activities and there will be an opposite effect on the level of working capital

requirement. There will be fall in inventories and cash requirement etc.

3) Seasonal operations :
If a firm operating in goods and services having seasonal fluctuations in demand, then

the working capital requirement will also fluctuate with every change. If the

operations are smooth and even throughout the year the working capital requirement

will be constant and will not be affected by the seasonal factors.

2) Market Competitiveness:
It has an important bearing on the working capital needs of firm. In view of

competitive conditions prevailing in the market, the firm may have to offer liberal

credit terms to the customer resulting in higher debtors. On the other hand, a

monopolistic firm may not require a large working capital. It may ask the customers

to pay in advance or to wait for some time after placing the order.

3) Credit Policy :
Credit policy means the totality of terms and conditions on which goods are sold and

purchased. A firm has to interact with two types of credit policies at a time. One, the

credit policy of the supplier of raw materials, goods etc., and two, the credit policy

relating to credit which it extends to its customers. In both the cases, however, the

firm while deciding the credit policy, has to take care of the credit policy of the

market. For example, a firm might purchasing goods and services on credit terms but

selling goods only for cash. The working capital requirement of this firm will be

lower than that of a firm which is purchasing cash but has to sell on credit basis.
4) Supply Conditions
The time taken by a supplier of raw materials, goods etc. after placing an order, also

determines the working capital requirement. If goods are received as soon as ordered

or in a short period after placing an order, then the purchaser will not like to maintain

a high level of inventory of that good. Otherwise, larger inventories should be kept

e.g. in case of imported goods.

4) Nature of Products :
Whether the products manufactured by the industry are influenced by seasonal factors

e.g. sugar, tea, jute, vegetable oil, fans, refrigerators etc.

5) Operating Cycle :
Time taken from the stage when cash is put into the business upto the stage when

cash is realized from sale of finished goods.

Thus, working capital requirement of a firm is determined

by a host of factors. Every consideration is to be weighted relatively to determine the

working capital requirement. Further, the determination of working capital

requirement is not once a while exercise, rather a continuous review must be made in

order to assess the working capital requirement in the changing situation.

 NEGETIVE WORKING CAPITAL

ADVANTAGE:

A negative working is a sign of managerial efficiency in a business with low inventory

and accounts receivables ( which means they operate on an strictly cash basis ).

Dabur India Limited has a negative working capital Rs. crores in the financial year

200 – 200 which shows that the company is extremely good in controlling its cash flows.

It has efficient financial management through which has it enabled in bringing down the

working capital figure to a negative one.

LIMITATIONS:

In any other situation, it is a sign a company may be facing bankruptcy or serious

financial trouble.

So having a negative working capital may prove a boon or bane.

 FINANCING OF WORKING CAPITAL
The working capital requirements of a concern can be classified as:

(a) Permanent or Fixed working capital requirements.

(b) Temporary or Variable working capital requirements.

The various sources for the financing of working capital are as follows:

 SOURCES OF WORKING CAPITAL

Permanent or Fixed Temporary or Variable

1)Debentures 1)Commercial Banks
2)Public deposits 2)Indigenous Banks
3)Ploughing-back of 3)Trade Creditors
profits 4)Installment Credit
4)Loans from financial 5)Advances
institution 6)Factoring
5)Shares 7)Accrued Expenses
8)Commercial Paper
 Permanent or fixed working capital requirment

Shares:
A company can issue various types of shares as equity shares, preference shares and

deferred shares. According to the Companies Act 1956, however, a public company

cannot issue deferred shares. Preference shares carry preferential right in respect of

dividend at a fixed rate and in regard to the repayment of capital at the time of

winding up the company. Equity shares do not have any fixed commitment charge

and the dividend on these shares is to be paid subject to availability of sufficient

profits.

Debentures:
A debenture is an instrument issued by the company acknowledging its debt to its

holder. The debenture holder are the creditor of the company fixed rate of interest is

paid on debentures. The interest on debentures is a charge against profit and loss

account.

Public Deposits:
They are the fixed deposits accepted by a business enterprise directly

from the public. This source of raising short term and medium term finance was very

popular in the absence of bank facilities.

Ploughing Back of profits:

It means the reinvestments by concern of its surplus earnings in the business. It is most

suitable for an established firm for its expansion, modernization and replacement etc. It is
the cheapest rather cost-free source of finance, need not to keep securities, no dilution of

control, stable dividend policy and confidence of the public.

Loans from financial institution:

This source of finance is more suitable to meet the medium term demands of working

capital. Interest is charged on such loans at a fixed rate and the amount of the loan is to be

repaid by way of installments in a number of years.

Tempoary or variable working capital requirment

Indigenous Bankers:
Private money-lenders and other country bankers used to be the only source of finance

prior to the establishment of commercial banks. They used charge very high rates of

interest and exploited the customers to the largest extent possible.

Trade Credit:
It refers to the credit extended by the suppliers of goods in the normal course of business.

The trade credit arrangement of a firm with its suppliers in an important source of short-

term finance. The credit worthiness of a firm and the confidence of its suppliers are the

main basis of securing trade credit.

Installment Credit:
This is another method for short-term financing by which the assets are purchase and the

possession of the goods is taken immediately but a payment is made in installments over

a predetermined period of time. Generally interest is charge on unpaid price.

Advances:
Some business house get advances from their customers against the order and this is the

source of short-term finance for them. It is cheap source of finance and in order to

minimize their investment in working capital. Some firm having long production cycle

specially the firm manufacturing industrial products preferred to take advances from

customers.

Accrued Expenses:
The expenses which have been incurred but not yet due and hence not yet paid. They

simply represent a liability that a firm has to pay for the services already rendered by the

employees. Example – wages, salary etc.

Deferred Income:
These are the incomes received in advance before supplying goods and services. They

represent funds received by a firm for which it has to supply goods or services in future.

These funds increase the liquidity of firm and constitute important source of working

capital. However firms having great demand for its production and service and good

reputation in the market can demand deferred income.

Factoring:
A factor is a financial institution which offer services relating to management that arising

out of credit sales.

Features of factoring

1) The factor selects the account of the client that would be handled by it establishes

along with the client, the credit limit applicable to the selected account.

2) The factor assumes responsibility for collecting the debts of account handed by it. For

each discount the factor pays to the client at the end of the credit period or when account

is collected.

3) The factor advances money to the client against the yet not collected amount and

advances up to 70 to 80% of the face value.

4) Factoring is done on two bases:-

i) Recourse – when the credit risk is born by the client.

ii) Non-recourse – when the credit risk is born by factor.

5) Besides interest or advances against the debt the factor charges a commission which

may be 1% or 2% of the face value.

Advantage
1) Factoring ensures a definite pattern of cash inflows from credit sales.

2) Contineous factoring may eliminate the need of separate collection department in the

business.

Disadvantage
1) The cost of factoring is much higher then other short-term borrowing.

2) Factoring of debt may be view or perceived as a sign of financial weakness.

Commercial Banks:
They the most important source of working capital or short-term capital. The major

portion of working capital loans are provided by commercial banks. The different forms

in which firms acquire credit or working capital are:-

i. Loan

ii. Cash credit

iii. Overdraft

iv. Letter credit

v. Purchasing or discounting of bill

Loans:

When a bank make an advance payment in lumpsum amount against sum security it is

called loan. In case of a loan a specified amount is sentioned by the bank to the customer.

This entire amount is paid to the borrow in cash or credit to his account. Commercial
banks generally provide short-term loans up to one year for meeting working capital

requirement. But now short-term financing by the bank exceeded from one year.

Cash Credit:

A cash credit is an arrangement by which bank allows his customer to borrow money up

to a certain limit against tangible securities or garranttes. The customer can withdraw

from the cash credit limit according to limit sentions. He can also deposit the surplus

amount he has. The interest is charged on the daily amount in the account.

Overdraft:

It means an agreement with the bank by which a current account holder is allow to

withdraw more than the balance to his credit up to a certain limit. There are no restriction

for operation of overdraft limit. The interest is charged daily on overdrawn balances.

Letter of Credit:

A letter of credit is an undertaking by the bank to honor the obligation of customer up to

a specific amount, should the customer failed to do so, it help the customer to obtain

credit from the supplier that their bills up to a specific amount would be honored. If the

customer fails to pay the amount on the due date to its supplier, the bank assumes the

liability of its customer for the purchase made under letter of credit.

Purchasing and Discounting of Bills:

It is the most important form in which bank lends money without collateral security. This

seller draws a bill of exchange on the buyer of goods on credit. The bank purchase bills

payable on demand and credit the customer’s account with amount of bill less discount.

At the maturity of bill bank presents the bill to its acceptor for payment. In case the bill

discounted is dishonored, the bank reggogs the full amount of bill from the customer

along with the expenses incurred by it in this connection.

In the Indian circumstances, banks play a very important in financing the

working capital requirement of the organizations. We will consider the bank as a source

of financing the working capital requirement of the organization under the following

heads:

 What should be the amount of assistance?

 What should be the form in which working capital assistance is extended?

 What security should be obtained for working capital assistance?

 What re the various applicable regulations to be considered by the banks while

extending the working capital assistance?

DIL’S Bankers include the following:

 Punjab National Bank

 Standard chartered Bank ltd.

 Hong Kong and Shanghai Banking Corporation Ltd.

 State Bank of India

  HDFC Bank

 IDBI Bank

 Citibank

Commercial Papers:
It includes unsecured promissory note issued by firm to raise short-term funds but only

large companies with their high credit rating and sound financial health can issue

commercial papers. It can help to raise short-term fund. For issuing commercial paper the

company should fulfill certain eligibility criteria:

i. It should be listed in stock exchange.

ii. Its network should be atleast 10crore.

iii. The maximum permissible finance of 25crore not exceeding 30% of working

capital.

iv. Who can invest in Commercial Papers:

 Individual

 Banks

 Corporate bodies incorporated in India

 Unincorporated bodies

 Non-resident Indians

 Foreign institutional investors

 CASH MANAGEMENT
Cash is one of the current asset of a business. It is needed at all the times to keep the

business going. A business concerned should always keep sufficient cash for meeting its

obligations. Any shortage of cash will hamper the operations a concern and any excess of

it will be unproductive. For some person cash means only money in the form of currency

or cash in hand and cash at bank. Cash itself does not produce goods and services. It is

used as a medium to acquire other assets. It is the other assets, which are used in

manufacture of goods and services.

MOTIVES FOR HOLDING CASH

1) Transaction motive: A firm needs cash for making transactions in the day to day

operations. The cash is needed to make a purchase, pay expenses, taxes, dividend etc.

2) Precautionary motive : A firm is required to keep cash for meeting various

contingencies. Though cash inflows and cash outflows are anticipated but there may be

variations in these estimates. For example – a debtor who was to pay after 7 days may

inform his inability to pay; on the other hand a supplier who used to give credit for 15

days or may not have to stock to supply or he may not be in a position to give credit at

present. In these situations, he will need cash to keep his production running.
3) Speculative motive : Speculative motive relates to holding of cash for investing in

profitable opportunities as and when they arise. Such opportunities donot come in a

regular manner. These opportunities cannot be scientifically predicted out only

conjectures can be made about their occurance.

The entire exercise on working capital management is for the purpose of preventing cash

being kept idle within the firm and in the process, losing opportunities of earning a return

and /or incurring additional cost in the process of converting cash into other form of

assets, such as inventories and accounts receivable. While there is need to have a certain

amount of cash in order to have the ability to settle transactions promptly on the due

dates, keeping more cash than what is required would mean loss of opportunities to earn a

return. If however, the cash kept within the firm has come from borrowings, then the

company will have to pay interest charges for the money even though it is kept idle.

Therefore, cash management is an important and integral part of working capital

management. In order to keep only a limited amount of cash, policies with regard to

safety stock (of cash) as well as the quantum of cash requirement will have to be

formulated. Speeding up collections too, helps in the process. One important technique

that is highly useful this purpose is the cash budget.

 RECEIVABLES MANAGEMENT
Trade credit arises when a firm sells its product or services on credit and does not

receive cash immediately. A firm grants trade credit to protect its sales from competitors

and to attract potential customers to buy its products at favorable terms. Accounts

receivable arise due to credit sales affected by the firm. While it might appear advisable

to sell only against cash, conditions in the market like a highly competitive one, might

compel a company to give credit in order to affect sales. Moreover, extending credit often

results in higher sales and in higher profits. In view of this, there is a need for a firm to

evolve a suitable credit policy and credit terms.

There is also need for effective co-ordinate between the managers who give credit

and those who collect credit. Though practices vary among firms, normally it is the

marketing department which extends credit and financial department which is held

responsible for collecting the credit so extended. The marketing managers in order to

further their sales targets, may not carefully adhere to the policies given by the firm and

might leniently extend credit. This makes the job of the collecting officials from the

finance department very difficult. If the collection is too strict, the firm may lose valuable

sales and if they become to lenient, serious problems may arise due to the loss of liquidity

and increase in bad debts. Responsibilities are often not properly allocated leading to

constant friction between marketing and finance managers.

There is also a tendency or a reluctance to write off bad debts and to continuously carry

them in the books of accounts as amount receivable. It is necessary to carefully examine

each one of the accounts and objectively verify whether they are realizable or not. For

this purpose, a technique known as “aging schedule or aging analysis” is carried out.

This is a tabulation of receivables according to the length of time they have been

outstanding. Take for example a firm which is willing to give credit for a period of 30

days, receivables within 90 days and receivables between 90-120 days and beyond.

A method which is often employed for quicker collection of receivables is to offer a

discount. The firm that offers 30 days credit, the buyer pays 1 percent if payment is made

within 10 days. In other words, for paying within 10 days, the buyer pays less then the

amount billed and for paying between the 11th and 13th day, he pays the full price. The

benefit to the buyer will work out to 18 percent (360/20 *100). If operating costs to the

company are too higher or earning opportunities on the money are greater than 18

percent, extending discount at the rate is indicated, some of the large clients who may not

settle accounts within 10 days, often demand this discount. If this is not acceded to, the

firm might be subjected to the displeasure of its large clients. Thus at times, giving a

discount instead of being helpful to the source of friction between the firm and its clients.
 INVENTORY MANAGEMENT

It is often said “when you need money, look to your inventories

before you look to your bankers”. Inventories constitute the most

significant part of current assets of the majority of companies in India. On an

average, inventories constitute approximately 60% of current assets in public

limited companies in India.

Inventories are the stock of products a company is manufacturing for

sale and components that make up the product. Inventories may be in three

forms:

1) Raw materials : These are the materials acquired from a supplier that

are used in the manufacture of goods.

2) Work in progress : Work in progress inventories are semi

manufactured products. They represent products that need moreover

work before they become finished products for sale.

3) Finished goods : Finished goods inventories are the completely

manufactured products, which are awaiting sale.

 A company should maintain adequate stock of
materials for a continuous supply of the factory
for an uninterrupted production. Now a days,
many large manufacturers operate on just-in –
time(JIT) basis whereby all the components to be
assembled on a particular day, arrive at the
factory early that morning, no earlier- no later.
This helps to minimize manufacturing costs as JIT
stocks take up little space, minimize
stock holding and virtually eliminate the risk of obsolete or damaged stock. Because JIT

manufacturers hold stock for a very short time, they are able to conserve substantial cash.

JIT is a good model to strive for as it embraces all the principles of prudent stock

management.

The key issue for a business is to identify the fast and slow movers with the

objectives of establishing optimum stock levels for each category and, thereby, minimize

the cash tied up in stocks.

Factors to be considered when determining optimum stock levels include:

 What are the projected sales of each product?

 How widely available are raw materials, components, etc.?

 How long does it take for delivery by suppliers?

  Can you remove slow movers from your product range without compromising

best sellers? Stock sitting on shelves for long periods of time ties up money,

which is not working for you.

For better stock control, a business concern should take the following steps:

 Review the effectiveness of existing purchasing and inventory system.

 Know the stock turn for all major items of inventory.

 Apply tight controls to the significant few items and simplify controls for the

trivial many.

 Sell off outdated or slow moving merchandise- it gets more difficult to sell the

longer you keep it.

 Consider having part of your product outsourced to another manufacturer rather

then make it yourself.

 Review your security procedures to ensure that no stock “ is going out the

backdoor!”.

 Higher than necessary stock levels tie up cash and cost in insurance.

 Accommodation cost and interest charges.

 ADVANTAGES AND DISADVANTAGES OF
SHORT-TERM FINANCING

ADVANTAGES:

Speed: Short-term loan can be obtain much faster than long-term credit restrictive and if

the firm’s business seasonal, it may not want to commit itself to long-term debt for three

reasons:

i. Floating costs are higher for long-term than short-term debt.

ii. Repayment penalties on long-term debt can be expensive.

iii. Long-term loan agreements contain provisions, which constrain the firm’s future

actions.

DISADVANTAGES:

Cost: Interest rates are generally lower on short-term and long-term debt.

Risk: Short-term financing is at disadvantage to long-term, because of the extra risk that

it carries

i. The lender can demand payment on short notice.

ii. The cost of the loan will increase if interest rates increase.
 SOURCES OF WORKING CAPITAL

1) Operations

The operations of the business generate revenues and entail expenses.

Revenues augment working capital and expenses, other than depreciation

and other amortizations, decrease working capital. Hence, working capital

increase on account operations is equal to net income + depreciation.

2) Issue of Share Capital

An issue of share capital results in an inflow of working capital because it brings cash
inflow or an increase in short-term receivables.

3) Long term borrowings

When a long-term loan is taken, there is an increase in working capital because of cash

inflow. A short-term loan, however, does

not effect on working capital. A short-term increases a current asset(cash) and a current

liability(short-term loan) by the same amount, leaving the working capital position

unchanged.

4) Sales of Non-current assets

When a fixed asset or a long-term investment or any other non-current asset is sold there

is capital inflow represented by cash or short-term receivables.

 USES OF WORKING CAPITAL

1) Payment of Dividend
The transaction results in cash (working capital) outflow.

2) Repayment of long-term liability

The repayment of long-term loans, debentures and any other long-
term liabilities involves cash outflow and hence a use of working
capital. The repayment of working liability, it may be noted does
not effect the working capital position because it entails an equal
reduction in current liabilities and current assets.

3) Purchase of Non-Current Assets

When a firm purchases fixed assets, long-term investments or any
other non-current assets, it pay cash or incur a short-term debt.
Hence, working capital decreases.
Figure below shows the sources and uses of
working capital

SOURCES USES
Operation Dividend
s s

Issue of share Repayment of

capital Working Long-Term
Capital pool Borrowings
Long-Term
Borrowings
Purchase of
Non-Current
Assets
Sale of Non-
Current assets
 COMPARISON OF DABUR’S WORKING
CAPITAL WITH OTHER COMPANIES

Company’s Financial Current Current Networking

Name
Year Assets Liabilities capital

Dabur 2007-08 471 436 35

India Ltd.
Britannia 2007-08 2399.61 2356.68 42.93
Industries
Hindustan 2007-08 38878.80 39802.49 -1013.69
Lever Ltd.
Marico 2007-08 1917.25 1066.70 851.11
Industries
Cadbury 2007-08 2175.90 1352.40 823.50
India Ltd.
Nestle 2007-08 5512.44 8100.8 -2588.36
India Ltd.
 WORKING CAPITAL OF DABUR INDIA LIMITED

F/Y 2003 2004 2005 2006 2007 2008

Working 2300.77 2384.94 1867.31 -16.89 -70.25 -22.95

capital

The above chart displays the working capital of Dabur India Limited. Dabur has been constantly

reducing its working capital and in the year 2003-04, a steep decline has taken place in the

company’s working capital resulting in the company’s working capital going negetive.

This has proved the managerial efficiency at Dabur at its finances. The company has reduced its

payment period from 39 days to a negative of five days, which shows that the company has

enough of funds available on credit for its suppliers, and is collecting money from its debtor at a

fast pace to avoid much of baddebts.

 WORKING CAPITAL OF CADBURY INDIA LTD.

F/Y 2000 2001 2002 2003

Working
Capital 941.34 1079.83 1307.7 823.5

The above graph displays the working capital for various year of Cadbury India Limited. The

working capital of this company has been constantly increases except for the year 2002-03 where

it has declined. This shows that Cadbury India Limited has lot of cash blocked in the form of

current assets. Hence because of this the working capital of company is positive and high.

The company needs to strengthen its cash policies and reduce its money blocked in the current

assets. Also, by decreasing the payment period the company can improve upon the working

capital.

WORKING CAPITAL OF HINDUSTAN LEVER LTD

 1999 2000 2001 2002 2003
F/Y

Working
Capital 1872.48 -3733.77 1714.39 300.96 -1013.69

The above graph displays the working capital scenario of Hindustan Lever Limited, one of

the largest FMCG company in the world.

The company has been having an enormous cash for planning out its future investments. The

working capital has been almost nil and negative since the past few years, showing that the

company has an excellent and well planned finances.

A company with negative working capital has a faster period and a

slower payment period.

WORKING CAPITAL OF BRITANNIA INDUSTRIES

 F/Y 2000 2001 2002 2003 2004

Working
Capital 51.57 256.96 592.21 746.65 42.03

Britannia Industries Ltd. Working capital was increasing set up from 2000 to 2003, when

finally the company realized it had to do something to control its blockage of free cash in the

current assets.

Thereby, though its managerial skills and efficient functioning the company reduced its

working capital from Rs. 746.65 crores in 2002-03 to Rs. 42.03 crores in 2003-04, a decline

of almost 94%.
 WORKING CAPITAL OF NESTLE INDIA LTD.

F/Y 2000 2001 2002 2003 2004

Working
Capital -745.12 -317.74 -743.81 -1388.53 -2588.36

The above graph displays the working capital of Nestle India Limited, which has been

negative 2000-01.

A brilliant and efficient working and managerial scenario is depicted through the working

capital of the company.

 WORKING CAPITAL OF MARICO LIMITED

F/Y 2000 2001 2002 2003 2004

Working
Capital 494.22 466.88 594.86 827.67 851.51

The graph shown depicts the working capital from the year 2000 to 2004 of Marico

Industries Limited, another renowned FMCG company.

The working capital of this company has been increased continuously, showing that the

company is blocking its cash available in current assets or is incurring large bad debts.
 RESEARCH METHODOLOGY

While critically analyzing the role of Budgetary Control Department in the

maximization of the profits of the company, we have deeply analyzing the
different parameters of controlling the cash management and inventory
management with the help of operating cycle time, ABC & XYZ analysis
and other methods of controlling the inventory apart from the determination
of Economic order quantity and other factors which can’t be ignored while
analyzing the cash & inventory management system in the company. For
this, we have taken the full advantages of the computerized cash
management & material management systems which help us to exactly
determined the requirement of the raw & packaging material, stores &
spares, according to the production planning for the we take the following
data:

i.. Actual requirement as per rolling production programme.

ii. Last year consumption.

iii Cash & credit sales of last year.

iv. Cash & credit purchase of last year.

The duration of the working capital cycle can be put as follows:

O=R+W+F+D–C
Where
O = Duration of operating cycle
R = Raw material and stores period
W = Work in process period
F = Finished stock storage period
D = Debtors’ collection period
C = Creditors payment period
Each of the components of the operating cycle can be calculated as follows:
R = Average stock of raw materials & stores_______
Average Raw Material and stores consumption per day

W = Average work-in-process inventory_______

Average Cost of production per day
F = Average finished stock inventory______
Average Cost of goods sold per day

D= Average book debts_______

Average Credit sales per day

C= Average trade creditors_______

Average credit purchases per day
 DIL’S MATERIAL MANAGEMENT

PROCESS OF MATERIAL FLOW

M Purchase order placed

A by purchase
department
T
Receiving of
E goods at
R factory gate Recheck
I
Verification of with the
A Acceptance
documents at gate
through supplier by of goods
L
contacting
M Issuance of M.N and him Return to
A weighing of loaded trucks the supplier
N
* If on test-
A Quality check by quality
yellow line
department
* If approved-
G green line
E Movement of goods to
* If rejected-
red line
M production departments as
per BOM.
E
N Production of finished goods
T
Movement of finished
goods to warehouse after
payment of exercise
Finished goods
move to other
locations as per
CSCC
 FINANCIAL STATEMENTS
ANALYSIS

MEANING AND CONCEPT OF

FINANCIAL ANALYSIS
the trend of these factors as shown in a series of statements. The term ‘financial analysis’

also known as ‘analysis and interpretation of financial statement’ refers to the process of

determining financial strengths and weaknesses of the firm by establishing strategic

relationship between the items of balance sheet, profit and loss account and other

operative data. Financial statement analysis is largely a study of relationship among the

various financial factors in a business as disclosed by a single set of statements, and the

study of

The purpose of financial analysis is to diagnose the information contained in

financial statements so as to judge the profitability and financial soundness of the firm.

The analysis and interpretation of financial statement is essential to bring out the mystery

behind the figures in financial statement. Financial Statement Analysis is an attempt to

determine the significance and meaning of the financial statement data so that forcast

may be made of the future earnings, ability to pay interest and debt maturities ( both

current and long-term ) and profitability of a sound dividend policy.

 TYPES OF FINANCIAL STATEMENT

Financial Statements primarily comprise two statements:

1) the position statement or the Balance Sheet
2) the income statement or the Profit and Loss A/C

BALANCE SHEET
The Balance Sheet is one of the important statements depicting the financial

strength of the concern. It shows on the hand the properties the it utilizes and on the other

hand the sources of those properties. The balance sheet shows all the assets owned by the

concern and all the liabilities and claims.

The table below shows the financial position (balance sheet ) Dabur India Ltd. For the year

ended 31st March 2007:-

 INCOME STATEMENT AND PROFIT AND
LOSS ACCOUNT
Income statement is prepared to determine1 the operational position of the

concern. It is a statement of revenues earned and the expenses incurred for earning that

revenue. If there is excess of revenues over expenditures it will show a profit and if the

expenditures are more than the income then there will a loss. The income statement is

prepared for a particular period, generally a year.

The table below shows the income statement (profit or loss a/c) of Dabur India Ltd., for

the year ended 31st March 2007:-

 CASH FLOW STATEMENT
Cash plays a very important role in the entire economic life of a business. A firm

need cash to make payments to its suppliers, to incur day-to-day expenses and to pay

salaries, wages, interest and dividend. It is very essential for a business to maintain an

adequate balance of cash. But many times a concern operate profitabily and yet becomes

very difficult to pay taxes and dividend. This may be because:-

1) although huge profits have been earned yet cash may not have been received

2) even if cash have been received, it may have drained out (used) for some other

purposes

Information about the cash flows of an enterprise is useful in providing users of financial

statements with a basis to access the ability of the enterprise to generate cash and cash

equivalents and the need of the enterprise to utilize those cash flows. The economic

decisions that are taken by users require an evaluation of the ability of an enterprise to

generate cash and cash equivalents and the timing and security of their generation.

Cash flow analysis yields a large number of distinct advantages in the crucial task of

setting debt policy :

1) It focuses on the solvency of the firm during adverse circumstances.

2) It takes into consideration the balance sheet changes and other cash flows that

do not appear in the profit and loss account.

 3) It gives an insight into the inventory of financial reserves available in the event

of recession

4) It views the problem in a dynamic context of time.

A cash flow statement summarizes the causes of changes in cash position of a business

enterprise between dates of two balance sheets.

 WORKING CAPITAL ANALYSIS OR
MEASURING THE WORKING CAPITAL

The analysis of working capital can be conducted through a

number of devices such as:

1) Ratio Analysis
2) Fund Flow Analysis
3) Budgeting

RATIO ANALYSIS

A ratio is a simple arithmetical expression of the relationship of

one number to another. The technique of ratio analysis can be
employed for measuring short-term liquidity or working capital
position of a firm. The followingratio may be calculated for this
purpose:

i. Current Ratio
ii. Acid Test Ratio
iii. Inventory Turnover Ratio
iv. Receivables Turnover Ratio
v. Payables Turnover Ratio
vi. Working Capital Turnover Ratio
vii. Working Capital Leverage Ratio
viii. Ratio of Current Liabilities to Tangible Net Worth
Funds flow analysis is a technical device designated to study the
sources were put. It is an effective management tool to study
changes in the financial position (working capital) of a business
enterprise between beginning and ending financial statements
dates. The funds flow analysis consists of:

i. Preparing schedule of changes in working capital, and

ii. Statement of sources and application of funds.

WORKING CAPITAL BUDGET

A budget is financial and/ or quantitative expression of business

plans and as a part of total budgeting process of business, is
prepared estimating future performance for future. The objective of
a working capital budget is to ensure availability of funds as and
when needed, and to ensure effective utilization of these resources.
The successful implementation of working capital budget involves
the preparing of separate budgets for various elements of working
 RATIO ANALYSIS

DABUR INDIA LTD. CADBURY INDIA BRITANIA

LTD.

2005 2006 2005 2006 2005 2006

RATIOS

Current 0.9 1.85 1.6 1.95 1.02 1.35

Ratio

Quick 0.44 1.09 0.9 1.47 0.44 0.9

Ratio

Inventory 11.38 7.6 8.89 11.98 14.69 21.37

Turnover

Ratio
 HINDUSTAN LEVER MARICO LTD. NESTLE

LTD. INDIA

LTD.

2006 2005 2006 2005 2006

2005

Current 0.97 1.01 1.8 1.95 0.61

0.74

Ratio

Quick 0.52 0.56 0.88 0.9 0.2

0.26

Ratio
Inventory 8.78 9.34 10.72 9.77 12.42

11.76

Turnover

Ratio
 After comparing the working capital of all the industries undertaken ,it can
be seen that Nestle in the winner of all. It hes made the best use of its cash
flows and managed its current assets in the best possible manner.

The second winner is Hindustan Lever Limited but it can be noticed

that the progress has been not stable.

Dabur India Limited stands third well ahead of Cadbury, Marico and
Britannia Industries limited. The working capital in the year 2003 was
Rs. 1867 million which went down to Rs –70 million. That indicates
that how well Dabur had utilized its managerial efficiency.
  Financial Management By

Khan and Jain

Financial Management By I.M

Pandey
 www.Dabur.com

 www.google.co.in
 www.britannia.com
 www.maricoindia.com
 www.nestleindia.com
 www.cadburyindia.com
 www.hll.com