International Journal of Research in Engineering, Science and Management
Volume-3, Issue-4, April-2020
www.ijresm.com | ISSN (Online): 2581-5792
Working Capital Management of Nestle India
Kamma Arpitha1, Pavan Kumar2
1,2
Student, Department of Management Studies, VIT University, Chennai, India
Abstract: Dairy cooperatives play important role in socio
economic development of our country particularly in India. Today
India is under developed and one of the illiterate countries in the
World with high level of unemployment. Agriculture alone is main
stay of the state but agriculture alone is unable to provide
necessary employment and income to the farmers and the landless
laborers. So, there is a crying need of improving the allied sector
for improving the socio-economic condition of the region. One of
the important allied activities is dairying. Modern dairy
cooperatives play a vital role in maintaining and promoting the
health of the people. This paper is an uncertain attempt to study
about the working capital management in the dairy sector of the
country.
Keywords: Working capital management, Profitability,
Promoting, India.
1. Introduction
The current squeeze on cash and credit is threatening the
survival of many businesses in all over the world. It is
considered the sources of company’s working assets and the
liabilities or collectively referred to as working capital. The
facts that corporations could not exist without working capital
is undeniable. Eventually, the management of working capital
(WCM) necessitates short term decisions in working capital
(WC) and financing of all aspects of both firm’s short-term
assets and liabilities. The main objective is to ascertain that firm
has the ability to continue operating with sufficient cash flow
for payment of both maturing short-term debt and impending
operational expenses. It involves crucial decisions on multiple
aspects, including managing account payables and account
receivables, preserving a certain level of inventories and the
investment of accessible cash. In view of that, working capital
management has become one of the most important issues in
the organizations where many financial executives strive to
identify the basic working capital drivers and the appropriate
level of working capital. Thus, its requirements are having an
impact on the market valuation of a business, which in erratic
times falls under even greater analysis by shareholders and
investors and its had been point out that an efficient working
capital management has become an essential element of the
overall corporate strategy to create shareholder value.
Efficient WCM increases firms’ free cash flow, which in turn
increases the firms’ growth opportunities and return to
shareholders. Thus, firms try to keep an optimal level of
working capital that maximizes their value and the efficient
management of working capital is likely to yield significant
444
results and its neglect can be highly dangerous to any firm. The
significant of WC had been highlighted in most of the literature
of WCM the efficient WCM are engaged with planning and
controlling current assets and liabilities in such a way that
eliminates the risk of inability to meet short-term obligations in
hands with the avoidance of excessive investments in these
assets. The inefficient management of WC not only reduces
profitability but ultimately may also lead a concern to financial
crisis thus every organization, irrespective of its profit
orientation, size and nature of business, needs requisite amount
of WC. Consequently, the efficient WCM is the most crucial
factor in maintaining survival, liquidity, solvency and
profitability of the concerned business organization. Thus, we
could say that approach in managing working capital has
enormous influence to the firm’s performance. Therefore, the
objective of our study is to discover the relationships between
working capital management with firm’s value and profitability
in a sample of listed companies. The findings of this study is
also hope to provide an insight for concerned managers on the
company’s WCM policy since it’s provide an important role in
its profitability by furnish more attention towards WCM.
2. Review of literature
Studies in the field of working capital management in
cooperative sector, there are some issues related to writing the
practices of working capital management. In this study we are
going to study about the past 5 year’s working capital
management of Nestle. Working capital management include
some ratios in considering it like working capital turnover ratio,
receivables turnover, inventory turnover, cash to current asset
ratio, quick ratio and current ratio. Nestle is clearly maintaining
a narrow record in all of these above mentioned ratios. It is been
considerably a well maintained and a growing company in both
National stock exchange and Bombay stock exchange. They are
well versed in maintaining their standards in the market among
their competitors Jayalakshmi and Udhayakumar (2012)
studied the working capital management of Rajasthan
cooperative dairy federation in India, and found that most of the
unions are lagging in their working capital management, Were
Ajmer union have a high liquidity position which is not good
for the entire union. Alwar union has a high debt exposure and
low liquidity status which is not ethical for the current trend.
Dhaur, M (2014) studied the cash management of milk
cooperatives. A study of MILKFED and HDDCF. The study
resulted that both MILKFED and HDDCF are moving in
 International Journal of Research in Engineering, Science and Management 445
Volume-3, Issue-4, April-2020
www.ijresm.com | ISSN (Online): 2581-5792
Table 1
Components of working capital management
Years Current asset Current liabilities Inventory Sales Purchases Cash Debtors Working capital COGS
2014 1963.67 1355.45 844.10 9854.84 4640.46 443.82 99.10 608.22 2126.12
2015 2485.48 1481.60 820.81 8175.31 3498.91 499.55 78.42 1003.88 1164.18
2016 3282.80 1366.75 940.06 9223.80 3435.73 880 97.93 1961.05 1798.67
2017 3937.39 1492.71 902.47 10009.60 4456.80 1457.42 88.97 2446.68 2182.73
2018 4136.95 1854.95 965.55 11292.27 4650.12 1610.06 124.54 2882 2846.37
growth path of performance and MILKFED was better the efficiency with which plant, equipment, and current assets
compared to HDDCF. are transformed into profit.
Parley and Zang (2016) in their research paper assessed the Interpretation on current assets:
percentage of southern dairy farmer’s insight regarding their The above table depicts the current assets of the company
supportive or proprietary handlers’ performance, level of from 2014 to 2018, during 2014 total currents assets was Rs.
gratification with the milk handlers and reason for staying with 1963.67 crores, in the year 2015 Rs. 2485.48 crores, in the year
the current milk supervisors. The study showed that the dairy 2016 Rs. 3282.80 crores, in the year 2017 Rs.3937.39 crores,
farmers were anxious about price, deduction; valuation and and in the year 2018 Rs.4136.95crores. From the above table
price farmers received appeared to be a noteworthy factor we can observe that there is a tremendous increase in the value
which affected farmer’s satisfaction level. of current assets from year 2014 -15 to 2017 -18, which
The study also initiates a trade-off between amount and indicates extensive growth of the organization. The company
deductions versus service and market and payment guarantee. should focus on increasing inflow.
The study anticipated that the dairy farmers needed a Interpretation on current liabilities:
cooperative which offers an assured market for the adherents. The above table depicts the current liabilities of the company
Hence a few studies have been carried out in the area of from 2014-15 to 2017-18, during 2014 total currents liabilities
working capital management of Nestle industry; moreover, no was Rs. 1355.45 crores, in the year 2015 Rs. 1481.60 crores, in
comprehensive indices were formed to examine the relationship the year 2016 Rs.1366.75 crores, in the year 2017 Rs 1492.71
between every components of working capital management. So, crores, and in the year 2017 Rs.1854.95 crores, From the above
the present study will pay attention to the existing literatures. table it can observe that there is a tremendous increase in the
The correlation between profitability and the level of working value of current liabilities from year 2014 -15 to 2017 -18,
capital of the sample firms and founds that profitability and which indicates extensive growth of the organization. But
working capital are linearly related positively to a certain during 2016 total current liabilities decline due to the amount
extent. All the above studies provide us a solid base and give us of inventory was high and the inflow of the cash balance or the
idea regarding working capital management and its debtors balance reduced; the company should focus on
components. They also give us the results and conclusions of increasing inflow.
those researches already conducted on the same area for
A. Current asset ratio
different countries and environment from different aspects. On
Table 2
basis of these researches done in different countries, we have Current ratio
developed our methodology for research. years Current asset (1) Current liabilities (2) Current asset ratio
(3=1-2)
3. Research methodology 2014 1963.67 1355.45 1.44: 1
2015 2485.48 1481.60 1.67: 1
The paper is basically a descriptive and an analytical paper 2016 3282.80 1366.75 2.40: 1
based on the facts that are provided. No primary data have been 2017 3937.39 1492.71 2.63: 1
taken for consideration for this research paper. This paper is 2018 4136.95 1854.95 2.23: 1
purely based on the secondary data. The data required to
complete the study have been observed from the annual report Interpretation:
of Nestle India. Taken into account the availability of data we The standard current ratio is 2:1. The current ratio for five
have taken past 5 years data from (2013-2014) – (2017-2018). years from 2014- 2015 to 2017-2018 are calculated and
For the purpose of data analysis and interpretation suitable presented in the above table. From the above table it is analyzed
mathematically and statistical technique has been used like that the current ratio position in the company is good up to the
ratios analysis, trend percentage, averages, etc…. The data were year 2017 i.e., the company has properly managed its working
also taken from the national stock exchange (NSE) and Bombay capital requirements; it shows good financial position of the
stock exchange (BSE). Ratio analysis was chosen as a company. After that there is slight decrease in the year 2018 to
performance measurement and indicators since this analysis 2.23:1 from 2.63:1. From the above table it is clear that the
provides methods for assessing the financial strengths and company has relatively high current ratio which indicates that
weaknesses of the firm’s performance using information found the company assets are highly liquid and the ability to pay its
in its financial statements. Profitability is used as a current obligations in time as when they are due.
measurement for corporate performance because it evaluates
 International Journal of Research in Engineering, Science and Management 446
Volume-3, Issue-4, April-2020
www.ijresm.com | ISSN (Online): 2581-5792

B. Acid test ratio it has decreased to 94.18:1, but later it is increased to 112.50:1
Table 3 in the year 2017, and then in the year 2018 it has decreased to
Acid test ratio 90.67:1. The above table indicates that the receivables on net
years Current Inventory (1) - (2) = Current Acid test working capital of the company are fluctuating.
asset (1) (2) (3) liabilities ratio
(4) (3/4) E. Working capital turnover ratio
2014 1963.67 844.10 1119.57 1355.45 0.82: 1
2015 2485.48 820.81 1664.67 1481.60 1.12: 1 Table 6
2016 3282.80 940.06 2342.74 1366.75 1.71: 1 Working capital turnover ratio
2017 3937.39 902.47 3034.92 1492.71 2.03: 1 years Current Current Working Sales (4) WCTR
2018 4136.95 965.55 3171.40 1854.95 1.70: 1 asset (1) liabilities capital (5=4/3)
(2) (3=1-2)
2014 1963.67 1355.45 608.22 9854.84 16.20: 1
Interpretation: 2015 2485.48 1481.60 1004.88 8175.31 8.13: 1
The Acid test ratio for five years from 2014- 2015 to 2017- 2016 3282.80 1366.75 1916.05 9223.80 4.81: 1
2018 are calculated and presented in the above table. From the 2017 3937.39 1492.71 2444.68 10009.60 4.09: 1
2018 4136.95 1854.95 2282 11292.27 4.94: 1
above table it is analyzed that the current acid test ratio position
in the company is good up to the year 2016-2017 that is the
Interpretation:
company has properly managed its working capital
The above table depicts the working capital turnover ratio.
requirements; it shows good financial position of the company.
From the above table it is analyzed that the working capital
From the above table it is clear that the company has relatively
turnover ratio of the company is 16.20:1 in the year 2014, and
high current acid test ratio which is the indication that the
a slight decrease in the year 2015 is 8.13:1. In the year 2016 it
company assets are highly liquid and the ability to pay its
is 4.81:1 and in the year 2017 it is 4.09:1 and in the year 2018
current obligations in time as when they are due.
it is 4.94:1. From the year 2016-2017 and for the year 2017-
C. Cash to current asset ratio 2018 the company has concentrated on Working capital since it
Table 4 has declined from 16.20:1 to 4.94:1. From the above table it can
Cash to current asset see that there is a down trend in working capital turnover ratio
Years Current asset (1) Cash (2) Cash to current asset till 2016-2018. From the above table it can infer that there is an
ratio (3=2/1)
2014 1963.67 443.82 0.22: 1 underutilization of working capital resource. Hence it is not a
2015 2485.48 499.55 0.20: 1 good indication for the company.
2016 3282.80 880 0.26: 1
2017 3937.39 1457.42 0.37: 1 F. Inventory turnover ratio
2018 4136.95 1610.06 0.38: 1 Table 7
Inventory turnover ratio
Interpretation: years COGS (1) Inventory Average Inventory turnover
(2) inventory (3) ratio (4=1/3)
From the above analysis, the cash to current asset are 2014 2126.12 844.10 790.01 2.69 : 1
increasing in the year 2015-2016 from 0.20:1 to 0.26:1, while 2015 1164.18 820.81 832.45 1.39 : 1
comparing the previous years. And for the next two years 206- 2016 1798.67 940.06 880.43 2.04 : 1
2018 it is maintained stable cash to current assets. Then in the 2017 2182.73 902.47 921.26 2.36 : 1
2018 2846.37 965.55 934.01 2.94 : 1
year 2016 it is increased to 0.26:1. From the above table it can
Interpretation:
be inferred that cash to current assets of the company was
From the above analysis, the company inventory are up and
fluctuating, and also stable current asset level of 0.20%, which
down from the year 2014-2015 to 2017-2018 that is in 2014 it
is led to the decrease in the working capital which again has
is 2.69:1, in the year 2015 it has decreased to 1.39:1, then in the
reduced the current assets of the company.
year 2016 it again increased to 2.04:1, and in the year 2017 it
D. Receivables turnover ratio has increased to 2.36:1, and then in the year 2018 it has
Table 5 increased to 2.94:1, Hence from 2014-2018 the company is
Receivables turnover ratio maintaining stable inventory level, and in the year 2018 it has
years Sales (1) Debtors (2) Receivables turnover ratio (3=1/2) increased to 2.94:1.
2014 9854.84 99.10 99.44: 1
2015 8175.31 78.42 104.25: 1
2016 9223.80 97.93 94.18: 1 4. Learning from study
2017 10009.60 88.97 112.50: 1
2018 11292.27 124.54 90.67: 1
Nestle is making a progression in the working capital
management as we can sense it from the working capital ratio
Interpretation: which is rapidly increasing,
From the above analysis the receivable to Net Working The inventory ratio as well as Receivable turnover ratio
Capital ratio of the company is 99.44:1 in the year 2014, then shows near about satisfactory performance during the study
in the year 2015 it increased to 104.25:1, then in the year 2016 period.
 International Journal of Research in Engineering, Science and Management
Volume-3, Issue-4, April-2020
www.ijresm.com | ISSN (Online): 2581-5792
5. Conclusion
Working capital plays a vital role in the organization's
operations and requires the efficient management. The
management of working capital concerns the management of
money, inventories, accounts receivable and accounts payable.
It is necessary for an organization to monitor its working capital
properly and maintain its balance at appropriate level. Shortage
of working capital may lead to lack of liquidity as well as loss
of production and sales. From this study it is concluded that
maintaining efficient level of working capital is very important
not only for Dairy products for all other sector as well. The
result of study shows that there is significant relationship
between profitability and working capital management. Though
the company’s earnings were increasing every year, the
company’s funds are not properly utilized. Therefore, it should
try to improve its financial positions in the coming years. At last
it can be concluded that company financial position was seeing
to be sound because the company tries to increase its production
and also revenue.
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