A RESEARCH PAPER ON

“IMPACT OF WORKING CAPITAL MANAGEMENT ON

FIRM’S FINANCIAL PERFORMANCE:
THE CASE OF SELECTED FMCG COMPANIES IN INDIA.”
 INTRODUCTION
 Working capital is the capital which is required WC CYCLE
in the business for meeting day-to-day
operations or requirements of the business.
 It can be easily converted into cash.
 It is the capital required for financing short
term or current assets.
 It is the amount of funds required to cover the
cost of operating the enterprise.
 Working capital management of a company
magnitudes liquidity, efficiency and overall
financial health.
 FMCG INDUSTRY OVERVIEW

 FMCG goods are also known as Consumer Packaged Goods.

 The market of FMCG products can be broadly categorized as:
 Personal Care Products,
 Household Care Products,
 Foods And Beverages,
 Health Care Products And Others.
 The Indian FMCG sector is the 4th largest sector in the economy with a
total market size of USD 49 billion in the year 2016.
 The market size of FMCG in India is estimated to grow from US$ 30
billion in 2011 to US$ 74 billion in 2018.
 LITERATURE REVIEWS
1. A study on, “Impact of working capital management on firm
profitability: a study of select FMCG companies in India.” - The study
reveals that there is a positive relationship between working capital and
profitability. The profitability of the companies is strongly affected by
other factors like capital structure, growth and size of the companies.
-Reeti Gaur and Dr. Rajinder Kaur (2017)
2. “Analysis of WCM of Indian FMCG Companies.” - The analysis found
consistent performance of Nestle and HUL even with negative cash
conversion cycle and negative working capital. The study discourages the
lower level of liquidity as maintained by the companies.
-Dr. Anjala Kalsie & Ashima Aror (2016)
 Continue…
3. A study on “Effect of WCM on the profitability of Indian firms” -
The results suggest that quick cash conversion cycle, quick collection
of accounts receivables and small inventory periods are favorable for
earning higher profits.
-Agrim Aggarwal & Rahul Chaudhary (2015)
4. A research on “Working capital trends and liquidity analysis of
FMCG sector in India” - HUL has negative working capital during
study period except in 2009.Other sampled companies ITC Ltd., P & G
India, Britannia Industries, and Nestle India dealing with positive
working capital position during study period.
-Shweta Mehrotra (2013)
Continue…
5. A research on “Working capital trends and liquidity analysis of
FMCG sector in India” - The results indicate that there is a
significant difference between Average current ratio, Average quick
ratio and average net working capital ratio of selected FMCG
companies under study.
-Prof. Vaishaliben C. Patel (2013)
 RESEARCH METHODOLOGY

 STATEMENT OF PROBLEM: “To analyze the impact of working

capital management on firms’ financial performance by studying and
evaluating selected FMCG companies in India.”

 TYPE OF RESEARCH: Present research study is a combination of

descriptive research and analytical research study.
 Descriptive research study involves surveys and fact finding inquiries of
different kinds.
 Analytical research study is study in which the researcher has to use
facts or information that is already available.
 OBJECTIVES OF THE STUDY

 The main objective of the study is to evaluate the impact of WCM on

firm’s financial performance of selected FMCG companies in India.
 To analyze the working capital structure in FMCG companies.
 To analyze the impact of various working capital components i.e.
cash, inventory, account receivables and account payables on firms’
performance.
 To analyze various factors affecting working capital management of
FMCG companies.
 To evaluate the short-term liquidity and solvency.
 To evaluate operating efficiency and credit policy.
 HYPOTHESIS OF THE STUDY

 H0: There is no significant difference between working capital

management and firms’ financial performance of selected FMCG
companies in India.

 H1: There is significant difference between working capital

management and firms’ financial performance of selected FMCG
companies in India.
 RESEARCH DESIGN
 This study uses descriptive financial ratio analysis and ANOVA to
measure, describe and analyze the impact of working capital
management on firms’ financial performance of FMCG sector.

 SAMPLE OF STUDY:
1. Hindustan Unilever Limited
2. Imperial Tobacco Company of India Limited
3. Procter & Gamble Hygiene and Health Care Ltd
4. Nestle India Limited
5. Godrej Consumer Products Ltd

 PERIOD OF STUDY: 2012-13 to 2016-17.

 VARIABLES OF THE STUDY
Cash Conversion Cycle Debtors Turnover Ratio Net Profit Ratio,

Cash Ratio Average Collection Return On Assets Ratio

Period
Inventory Turnover Creditors Turnover Return On Equity
Ratio Ratio
Inventory Conversion Average Payment Period Return On Capital
Period Employed
Working Capital Current Ratio
Turnover Ratio

Operating Cycle Ratio Quick Ratio

METHODS OF DATA COLLECTION
 Secondary data collection method to conduct research and analysis.
 Annual reports of sampled units are used for analysis.
 Audited Financial Statements
 Cash Flow Statements
 Financial Ratios
 Cash Flow Ratios

TECHNIQUES FOR ANALYSIS:

1. Accounting technique: Ratio Analysis
2. Statistical technique: Analysis of Variance (ANOVA)
 SIGNIFICANCE OF THE STUDY

 The study helps to manage working capital components effectively

and efficiently.

 It is significant in evaluating the effect of working capital

management on profitability and liquidity position of the firms.

 It is important to improve financial decision making.

 It is significant to optimize the value of shareholders and maintain

favorable trade off between liquidity and profitability in the firms.

 It is important for creditors to know credit worthiness of the firms.

 LIMITATIONS OF THE STUDY

 This study is limited to the small sample of Indian FMCG companies,

so that the results of the study are only indicative not conclusive.

 The study is based on secondary data which are taken from

published annual reports of sampled FMCG companies and its
findings depend entirely on the accuracy of such data.

 Ratio analysis is carried out for analysis of data and it has its own
limitation which also applies to the study.

 The period considered for the study is last 5 years. It is not possible
to find out the life time performance of the FMCG industry.
DATA ANALYSIS
 WORKING CAPITAL
WORKING CAPITAL OF HUL WORKING CAPITAL OF ITC WORKING CAPITAL OF PGHH
1,600.00 14,000.00 120,000.00

1,400.00
12,000.00 100,000.00
1,200.00
10,000.00
1,000.00 80,000.00
8,000.00
800.00 60,000.00
6,000.00
600.00
4,000.00 40,000.00
400.00
2,000.00 20,000.00
200.00

0.00 0.00
2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 0.00
-200.00 2012 2013 2014 2015 2016

WORKING CAPITAL OF NESTLE INDIA WORKING CAPITAL OF GCPL

18,000.00 200
16,000.00
100
14,000.00
0
12,000.00
2012 2013 2014 2015 2016
10,000.00 -100
8,000.00
-200
6,000.00
4,000.00 -300

2,000.00 -400
0.00
2012 2013 2014 2015 2016 -500
 ANALYSIS OF VARIANCE (ANOVA)
VARIABLES ANOVA (Fc VALUE) HYPOTHESIS
(Ft = 2.866081) ACCEPTED / REJECTED
1. Cash Conversion Cycle 52.44 Rejected
2. Cash Ratio 4.32 Rejected
3. Inventory Turnover Ratio 60.77 Rejected
4. Inventory Conversion Period 71.65 Rejected
5. Working Capital Turnover Ratio 2.33 Accepted
6. Operating Cycle Ratio 56.39 Rejected
7. Debtors Turnover Ratio 109.01 Rejected
8. Average Collection Period 19.81 Rejected
9. Creditors Turnover Ratio 46.29 Rejected
10. Average Payment Period 33.38 Rejected
11. Current Ratio 6.41 Rejected
12. Quick Ratio 10.13 Rejected
13. Net Profit Ratio 11.05 Rejected
14. Return On Assets Ratio 16.84 Rejected
15. Return On Equity 34.44 Rejected
16. Return On Capital Employed 49.05 Rejected
 ANOVA
120
109.01

100

80
71.65

60.77
60 56.39
52.44
49.05
46.29

40 34.44
33.38

19.81
20 16.84
10.13 11.05
6.41
4.32 2.33
0
CCC CR ITR ICP WCTR OCR DTR ACP CTR APP CR QR NPR ROA ROE ROCE
 FINDINGS
 Important role in the company’s operations and requires the efficient
management.
 The profitability and liquidity of the companies are directly linked to the
efficient management of working capital.
 To resolve the uncertainty about cash flow prediction and lack of
synchronization between cash receipts and payments, the firm should
develop appropriate strategies for cash management.
 The main objective of the WCM is to arrange sufficient funds needed for
it from the best available cost effective source.
 ANOVA test reveals that there is significant relationship between
different variables defined in study and working capital management.
 CONCLUSION
 The results of ratio analysis and ANOVA; shows that there is positive
relationship between working capital variables and working capital
management of FMCG industry.
 Data analysis and hypothesis testing reveals that sampled companies
manage their working capital in more efficient ways.
 The managers are able to create balance between corporate profitability
and liquidity and get optimum working capital management.
 Managing cash, accounts receivables and inventories will ultimately
increase profitability.
 Creates value for the stockholders by managing working capital
efficiently.
THANK YOU