Professional Documents
Culture Documents
Presented By-
Kritika
Sharma (120020)
Mansi
(120023)
Shilpa
Kumari (120045)
1. Introduction
2. Industry Overview
3. Objective and Contribution of
OUTLINE the study
4. Methodology
5. Data Analysis
6. Discussion and Conclusions
• Wor k in g C a p it a l
Introduction • Wor k in g c ap i t a l e f f i ci e nc y
Working Capital
Working capital which is also known as net working capital is the difference between a
company’s current assets (such as cash, accounts receivable, inventory) and current liabilities
(such as accounts payable and accrued expenses).
It is a measure of a company’s liquidity, operational efficiency and its short-term financial health.
A positive NWC indicates a company’s ability to meet its short-term financial obligations, while
at the same time very high level of working capital means a company is holding too much of
inventory or not investing its excess cash.
A negative working capital signifies financial distress derived due to the occurrence of
unforeseen operating expenses.
Working Capital Efficiency
Efficient management of working capital means maintaining optimum level of working capital to
balance liquidity and solvency in a firm to ensure maximum profit of the organization.
This balance is created by managing different components of working capital. All industries are not
sensitive to same set of working capital components and to same extent. Thus efficiency of working
capital is defined differently in different industries.
LITERATURE REVIEW
We have gone through 25 research papers to get holistic idea about working capital efficiency and the
relationship between the working capital efficiency and firm Performance.
Literature Review.xlsx
CONTD…
Rimsha Khalid, Tehreen Saif, Abdul Rehman Gondal, Hamza Sarfaraz in a journal in MJBAS
(2018) established the WCM and profitability relation in Electrical Equipment listed in Karachi
Stock Exchange (Rimsha Khalid1, 2018). This study fills the gap of existing literature. The
study finds a statistically significant positive relation among WC (ITR, CR, D/E ratio) and
ROA.
A similar journal by Asif Iqbal (KEMCS, 2018) studying WCM and profitability relation in
Manufacturing Firms Listed in Karachi Stock Exchange. Through Correlation Analysis; it was
found that CR, QR and NOP are positively correlated while CCC and NOP .
CONTD…
Majority of the studies have provided evidence of positive relationship between working capital
efficiency and firm performance.
However, within the limited review we do not find studies attempting to benchmark working
capital efficiency.
Thus, the study majorly focuses on benchmarking working capital efficiency and also tries to
measure the relationship between working capital efficiency and firm performance in the Indian
context with latest data considering three different industries.
To benchmark Working Capital
Efficiency in three Industry.
Pharmaceutical
Industry of India Indian pharmaceutical industry
has grown over the period.
Currently, the market size is
estimated to be 20.83 US$ Billion
whereas the exports is estimated
to be 19.14 US$ Billion.
Indian pharmaceutical industry is the world’s third largest producer of drugs by volume
The Pharmaceutical industry builds over USD$ 11 billion of trade surplus annually and also the pharma sector is
amongst the top five sectors contributing in the reduction of India’s trade deficit
EY report suggests that the pharmaceutical industry provides employment to over 2.7 million people, in areas
Indian pharmaceutical industry is the supplier to the 50 per cent of the demand across the world for different
antibodies, 40 percent of generic demand in the US and 25 percent of all medication in UK.
1. Wholesale and retail industry is an
AND RETAIL
and expected to grow 25% by 2025 and
estimated to be US$ 60 billion by 2020
with the top five in the world by
INDUSTRY IN economic value.
•To summarize data and •To find degree and •To find relation between two
find patterns and deviation. direction of relation among variables.
all variables.
Variables used for regression analysis
Variables Meaning
DIO The average time (in days) a company holds its inventory before selling it.
DRO The average time (in days) a company takes to collect payment after a sale has been made.
DPO The average time (in days) a company takes to pay its bills and invoices to its trade creditors.
OC The length of time between the purchase of inventory and the cash collected from the sale of
the inventory
NOC The length of time between paying for inventory and the cash collected from the sale of the
inventory
ROA Measures the profitability of a business in relation to its total assets. It is calculated by dividing
Net income by Average Total Asset.
DE Ratio The debt-to-equity (D/E) ratio is calculated by dividing a company’s total liabilities by its
shareholder equity. It reflects the ability of shareholder equity to cover all outstanding debts in
the event of a business downturn.
Sales Growth Ratio It is percentage change in net sales for the current year relative to net sales for preceding year.
RESULTS AND DISCUSSIONS
DESCRIPTIVE ANALYSIS
AGRICULTURE AND FOOD INDUSTRY
Representatives of
the Industry
S.No. Company Name S.No. Company Name
1 I T C Ltd. 14 Tata Consumer Products Ltd.
2 Nestle India Ltd. 15 Hatsun Agro Products Ltd.
3 United Spirits Ltd.
16 Godfrey Phillips India Ltd.
4 Bajaj Hindusthan Sugar Ltd.
17 Dhampur Sugar Mills Ltd.
5 Britannia Industries Ltd.
18 L T Foods Ltd.
6 Glaxosmithkline Consumer Healthcare Ltd.
19 E I D-Parry (India) Ltd.
7 United Breweries Ltd.
8 Marico Ltd. 20 Varun Beverages Ltd.
In case of Agriculture Industry, more than 80% of the total sales in 2014, was made by only top
25 companies of the Industry.
PHARMACEUTICAL INDUSTRY
2015 7% 93%
2016 5% 95%
Representatives of
2017 9% 91% the Industry
DRO 39 40 51
DPO 63 54 58
DIO 49 59 66
DRO 53 41 43
DPO 59 68 77
NOC 42 31 32
Source Of Financing – Wholesale and Retail Industry
Cash Policy 7% 5% 8%
Comparing Sample With Leaders
Freshtrop Fruits Ltd. (Agriculture and Food Industry)
DIO 141
DRO 82
Operating Cycle DPO 114
OC 223
NOC 109
NWC/GWC 20%
Source of Financing
1-(NWC/GWC) 80%
CA/NS 53%
Current Asset Policy
Policy Moderate
Cash Policy CB/NS 3%
GWC 779
Working Capital
NWC 159
Bharat Immunologicals & Biologicals Crop. Ltd. (Pharmaceutical Industry)
DIO 43
DRO 125
Operating Cycle DPO 69
OC 167
NOC 98
NWC/GWC 44%
Source of Financing
1-(NWC/GWC) 56%
CA/NS 54%
Current Asset Policy
Policy Moderate
Cash Policy CB/NS 26.8%
GWC 654
Working Capital
NWC 284
T T K Healthcare Ltd.( wholesale and Retail Industry)
DIO 52
DRO 36
Operating Cycle DPO 72
OC 88
NOC 22
NWC/GWC 27%
Source of Financing
1-(NWC/GWC) 73%
CA/NS 20%
Current Asset Policy
Policy Aggressive
Cash Policy CB/NS 3%
GWC 450
Working Capital
NWC 582
Agriculture and Food Industry
Correlations
DIO DRO DPO OC NOC D/E Ratio ROA Size SG
DIO P. Corr. 1 .243* .480** .937** .854** 0.119 -0.128 -0.062 0.059
DRO P. Corr. .243* 1 .373** .567** .474** 0.013 -.353** -0.022 0.037
DPO P. Corr. .480** .373** 1 .542** 0.114 .511** -.265** -0.014 .535**
OC P. Corr. .937** .567** .542** 1 .896** 0.106 -.236* -0.060 0.064
NOC P. Corr. .854** .474** 0.114 .896** 1 -0.144 -0.139 -0.064 -.207*
D/E Ratio P. Corr. 0.119 0.013 .511** 0.106 -0.144 1 -.363** 0.023 .822**
ROA P. Corr. -0.128 -.353** -.265** -.236* -0.139 -.363** 1 -0.109 -0.168
Size P. Corr. -0.062 -0.022 -0.014 -0.060 -0.064 0.023 -0.109 1 0.087
SG P. Corr. 0.059 0.037 .535** 0.064 -.207* .822** -0.168 0.087 1
*. Correlation is significant at the 0.05 level (2-tailed).
DRO P. Corr. -0.072 1 .494** .800** .567** .456** -.323** 0.003 -0.181
DPO P. Corr. -0.007 .494** 1 .413** -0.160 0.110 -.218* 0.070 -0.034
NOC P. Corr. .590** .567** -0.160 .833** 1 .283** -0.054 .255* 0.010
D/E Ratio P. Corr. -0.087 .456** 0.110 .325** .283** 1 -.286** 0.053 -.420**
ROA P. Corr. 0.167 -.323** -.218* -0.172 -0.054 -.286** 1 .203* .400**
Size P. Corr. .453** 0.003 0.070 .274** .255* 0.053 .203* 1 0.193
Regression
2013.768 4 503.442 5.483 .001b
1 Residual
8539.442 93 91.822
Total
10553.210 97
Regression
2380.315 6 396.719 4.417 .001b
2 Residual
8172.895 91 89.812
Total
10553.21 97
a. Dependent Variable: ROA
b. Predictors: (Constant), Sales growth, NOC, size, DE Ratio
c. Predictors: (Constant), Sales growth, NOC, Size, DE ratio, DPO, DIO
Following is the regression model fit, that predicts ROA for the first model:
Coefficientsa
Standardized
Unstandardized Coefficients
Model Coefficients t Sig.
B Std. Error Beta
(Constant)
.679 4.493 .151 .880
NOC
-.007 .015 -.047 -.464 .644
1. DE Ratio
-.633 .403 -.171 -1.572 .119
Size
1.010 .545 .184 1.854 .067
Sales Growth
.243 .097 .267 2.507 .014
a. Dependent Variable: ROA
Following is the regression model fit, that predicts ROA for the second model:
ROA = 5.069 + (0)DIO + (-0.023)DRO + (-0.026)DPO + (-0.384)DE Ratio + (0.942)Size + (0.255)Sales growth
Coefficientsa
Model Summary
The present study through the descriptive analysis showed very high standard deviation in variables of
working capital. It was found that efficiency of working capital management affects Benchmarking
measures.
In Pearson correlation analysis, significant positive correlation of Return on Asset with NWC and C&B
and negative correlation with DRO, DPO, OC, NOC.
In regression analysis, taking Return on Asset (ROA) as dependent variable, it was found that DRO and
Sales growth is closely related to dependent variable, contributing to high dependability.
FINDINGS – Pharmaceutical Industry
The study finds out 14 Profit leaders, 13 Sales leaders and 10 Growth leaders out of the sample.
The present study through the descriptive analysis showed very high standard deviation in variables of
working capital. It was found that efficiency of working capital management affects Benchmarking
measures.
In Pearson correlation analysis, significant positive correlation of Return on Asset with Sales growth and
negative correlation with DRO and DE Ratio @1% significance and at @5% significance a positive strong
correlation with Size and a negative strong correlation with DPO.
In regression analysis, taking Return on Asset (ROA) as dependent variable, it was found that Sales growth
is closely related to dependent variable, contributing to high dependability.
FINDINGS – Wholesale and Retail Industry
The study finds out 12 Profit leaders, 13 Sales leaders and 7 Growth leaders out of sample.
Pearson Correlation Analysis and P value in correlation shows the significance. At 1%
significance level Return on Asset has positive relation with NWC, NWC/GWC, NPM, Sales
growth and negative relation with DRO and OC. At 5% significance level it shows positive
relationship with DE ration and negative relation with DRO.
In descriptive analysis, with the wide variability in standard deviation value from 63 to 16340
shows it affects company Benchmark through working capital management.
In regression NOC and Size is closely related with ROA with the value 0.015 and 0.033 which
contributing high dependability.
In terms of Source of Finance, Profit Leader has comparatively better than the growth and sales leader.
Thank You!