ABSTRACT

Administration of Working Capital is one of the most vital functions of corporate

management. Every organization whether public or private, profit oriented or not, regardless
of its extent and nature of business, needs sufficient amount of working capital. The
proficient working capital management is most critical factor in maintaining existence,
liquidity, solvency and accomplishment of the any business organization. A company needs
sufficient finance to carry out purchase of raw materials, payment of predictable operational
expenses and funds to meet these expenses are together known as working capital. Keeping in
view the importance of working capital management as a grey area of corporate finance
function, an effort has been made to examine the working capital styles and practices
particularity in FMCGs sector in India by selecting five FMCGs companies (Hindustan
Unilever Limited, Nestle India Limited, Britannia Industries, Proctor and gamble, and ITC).
The FMCG sector in India is at present-day, the fourth leading sector with a total market size
in excess of USD 14 billion as of 2013. This sector is expected to grow to a USD 35 billion
industry by 2016. This industry primarily includes the production, circulation and marketing
of consumer packaged goods, that is those categories of products which are consumed at
fixed intervals. The study is based on secondary data i.e. Annual Reports of the selected
companies. The period of study is five years and method of data analysis and ratio analysis as
tools of financial statement analysis to examine the degree of efficiency of working capital
management has been embraced.












RESEARCH METHODOLOGY
SOURCES AND METHODS:
The following sources have been sought for the preparation of this report:
Primary sources such as current annual reports, books on financial management by
various authors and business magazines such as Business World, Business Today etc.
Secondary sources like previous years annual reports, reports on working Capital for
research, analysis and comparison of the data gathered.
LIMITATIONS:
The following limitations have been faced in this project in spite 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 March to April. 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 year proceeding previous year.
SCOPE:
The study of working capital helps us to know the current assets and current liability of an
organization. If working capital is excess then the excess amount of working capital is idle. If
the working capital is not sufficient for meeting the daily expenses then it creates a problem.
So it is necessary to maintain exact working capital according to the expenses for the
organization.
In this project, the study of working capital analysis is done through working capital budget
and ratio analysis, which are wide spread and some ratios creates relations with whole casting
industry.
In any analysis of working capital, a distinction is made between temporary and permanent
working capital requirements. The efficiency of the planning and management is subject to
the correct estimates of the working capital requirement. The fixed assets which typically
require a large mass of overall funds can be used at and optimum level only if sustained by
sufficient working capital if working capital level is not properly maintained and managed,
then it may result in unnecessary blocking of scarce resources of the Firm.
INTRODUCTION

The concept of WC is very vital because the term used for the capital needed for the day-to-
day operation. Adam Smith (1776) explained, The goods of the dealer yield him no revenue
or profit, till he retails them for money, and the money Harvests him as little till it is again
swapped for goods. His capital is continuously going from him to one shape, and returning to
him in another, and it is only by means of such flow, or successive exchanges, that it can
produce him revenue; such capital consequently, may very properly be called circulating
capital. What we called working Capital Smith called circulating capital. This capital is
needed for regular business operation such as purchase of raw materials, payment of direct
and indirect expenses carry on production, investment in stock and store, credit granted to
customers keeping balance, etc. Decisions relating to working capital and short term
financing are referred to as WCM. It is best described as the administration of all aspects of
current assets and current liabilities. The purposes of WCM are to make sure that the firm is
able to carry on its operations and that it has enough cash flow to satisfy both maturing short-
term debt and upcoming operative expenses. WCM therefore, consists of: a) considering the
trade- off between costs and benefits derived from alternative levels of investment in WC
and: b) managing of both control and decisions regarding stock, debtors and cash. According
to Harris (2005) Working capital management is a simple and straightforward concept of
ensuring the ability of the firm to fund the difference between the short term assets and short
term liabilities. Nevertheless, complete mean and approach preferred to cover all its
companys activities related to vendors, customer and product. (Hall, 2002). Now a day
working capital management has considered as the main central issues in the firms and
financial managers are trying to identify the basic drivers and level of working capital
management (Lamberson, 1995). The working capital meets the temporary financial
requirements of a business enterprise. It is a trading capital, not reserved in the business in a
particular form for longer than a year. The money devoted in it changes form and substance
during the typical course of business processes. The necessity for keeping an adequate
working capital can hardly be questioned. Just as flow of blood is very necessary in the
human body to maintain life, the flow of funds is very necessary to continue business. If it
becomes weak, the business can hardly flourish and survive. Working capital starvation is
generally accredited as a major cause if not the major cause of small business fiasco in many
developed and developing countries (Rafuse, 1996). The accomplishment of a firm depends
ultimately, on its ability to produce cash receipts in excess of pay-outs. The cash flow
problems of many small businesses are aggravated by poor financial management and in
particular the lack of arrangement of cash requirements (Jarvis et al, 1996). The study
purposes are to scrutinize the working capital management of the sample firms. The amounts
devoted in working capital are often high in proportion to the total assets employed and so it
is vital that these amounts are used in an effective and efficient way.

INDUSTRY PROFILE

FMCG stands for Fast Moving Consumer Goods. Companies in the FMCG sector provide
high volume/low value goods such as food, drink, household goods and confectionary
items.The FMCG sector is one of the fastest growing sectors in the national economy and
encompasses organizations involved in distribution, manufacturing and retailing.
Fast Moving Consumer Goods are a multi-million rupees industry. FMCG is one of the most
competitive areas. The sector includes groceries, beauty products and home care companies,
the majority of which come from large global corporations.
At the time of independence (1947) MNCs were allowed to operate in India, but the Indian
market was too minor for global MNCs. HLL has a manufacturing base, Colgate and Nestle
mostly carry out only trading activities. In 1978 several FMCG products, which are
essentially mass consumption items, became luxury products due to exorbitant burden of
excise duties, sales tax.
In a FMCG industry everyone is a consumer. This makes the industry personally relevant as
everyone is personally affected. People get more excited and care more deeply about the
products they put in use every day.
FMCG industry in India observed noteworthy changes over the 1990s. Several important
FMCG companies like Hindustan unilever Ltd. (HUL) and Procter & Gamble India Ltd.
(P&G) have been facing stark glitches on account of increased rivalry from small and
regional companies and from sluggish growth across its numerous product groups. As a
consequence, many of these firms were forced to revamp their product, marketing,
distribution and customer service strategies to strengthen their position in the market.
The realization of the customer's growing awareness and the need to meet changing
requirements and preferences on account of changing lifestyles also contributed to the
formulation of customer- centric strategies. HLL led the way in revolutionizing the product,
market, distribution and service formats of the FMCG industry by focusing on rural markets,
direct distribution, creating new product, distribution and service formats. FMCG does not
suffer from mass layoffs every time the economy starts to dip. You may put off buying a car,
but you don't put off dinner.
Indian FMCG companies like Dabur and HLL for the first time found themselves under
severe stress as MNCs went on price dropping splurge. The FMCG sector also received a lift
from the government led resourcefulness in the 2004 budget such as the setting up of excise
free zones in various parts of the country that witnessed firms moving away from
subcontracting to manufacturing by investing in the zones. ASSOCHAM has specified that
the FMCG industry will achieve a growth of 4-5 per cent in 2012-2013. However, FMCG
companies will face the tests of sharp swings in commodity prices, likely to influence profits
like never before.

ANALYSIS OF FMCG COMPANIES

Britannia Industries Ltd.
Britannia was integrated in 1918 as Britannia Biscuits Co Ltd in Calcutta. In 1924, Pea Frean
UK acquired a governing stake, which later passed on to the Associated Biscuits International
(ABI) a UK established company. During the 50s and 60s, Britannia stretched operations to
Mumbai, Delhi and Chennai. In 1987, Nabisco, a renowned European food company, picked
up ABI. In 1989, J M Pillai, a Singapore centred NRI businessman along with the Groupe
Danone attained Asian operations of Nabisco, thus acquiring governing stake in Britannia. In
1977, the Government reserved the industry for small scale sector, which controlled
Britannia's growth.
Britannia's controlling stake is mutually with Groupe Danone and Nusli Wadia. Groupe
Danone is one of the chief players of the world in bakery products business. It picked up
interest in Britannia Industries in 1989 and assimilated controlling stake in 1993.Nusli Wadia
group is one of the prominent industrial houses in the country, with interests mostly in textiles
and petrochemicals.
Britannia's plants are situated in the 4 main metro cities - Kolkatta, Mumbai, Delhi and
Chennai. A large part of products are also subcontracted from third party producers. Dairy
products are out sourced from three producers - Dynamix Dairy centred in Baramati,
Maharashtra, Modern Dairy at Karnal in Haryana and Thacker Dairy Products at Howrah in
West Bengal. Britannia is the market front-runner in the organized biscuit and bakery product
market in India. Biscuits add to more than 80% of Britannia's entire turnover. Other products
comprise bread and cakes. Britannia expanded into dairy products in 1997 with processed
cheese.
The entrance of new MNCs has not posed a straight threat to Britannia, as these MNCs have
placed their brands in the premium/health segment. Britannia has maintained market control
with a 40% volume share and 48% value market share in the organized sector. FMCG major
HLL is expected to venture into the segment. Britannia has been aggressive in new launches
and marketing during the last 2 years anticipating the competition. It has also recently
acquired Kwality Biscuits, gaining a strong foothold in the southern market.
Working Capital Trends and Liquidity Analysis of Britannia Industries from March 2008 to
March 2012
(Rs. In Crore)
March 2012 March 2011 March 2010 March 2009 March 2008
Inventories 328.28 311.20 268.34 253.63 301.53
Sundry Debtors 52.14 57.27 39.49 49.61 46.33
Cash & Bank 30.94 27.25 18.11 40.56 43.54
Balance
Loan & 391.22 351.11 211.00 209.61 185.54
Advances
Fixed Deposits 0.00 1.50 5.25 0.24 0.23
Total Current 784.59 648.33 552.19 553.65 577.49
Assets
Total Current 1124.15 625.96 510.10 437.54 370.31
Liabilities
Net Current -339.57 22.37 42.09 116.11 207.18
Assets
Source: Compiled from the Annual Reports of Britannia
Industries
Key Financial Ratios of Britannia Industries
March 2012 March March 2010 March March 2008
2011 2009
Current Ratio 0.70 1.04 1.08 1.27 1.22

Quick Ratio 0.36 0.50 0.50 0.65 0.68

Inventory Turnover 13.15 16.68 15.08 14.54 9.98

Debtors Turnover 90.75 87.18 76.42 64.88 69.07

Investment Turnover Ratio 13.15 16.68 15.08 14.54 9.98


Average Finished Goods
held - 12.58 13.81 11.59 11.08


No. of days in working
capital -24.62 1.91 4.45 14.43 28.82


The overhead cited table revealed that the company was dealing with positive working capital
excluding during March 2011-12 as current liabilities amplified radically by nearly 80 per
cent as equated to current assets which has rose by only 21 per cent. Moreover, in gross
working capital loans and advances has major share during last two years whereas from
March 2010 to March 2008 inventories had the chief share in total current assets. However,
fixed deposits have minimum share in gross working capital and it was nil in March 2012.As
for as number of days in working capital is concerned, it has shown a decreasing drift and
even curved into negative through March 2011-12. It specifies that the company has good
cash flow and negative working capital reveals that the company functions on an almost
stringently cash basis with little inventory and accounts receivables.

Nestle India Ltd.
Nestle was endorsed by Nestle Alimentana, Switzerland, a solely owned supplementary of Nestle
Holdings Ltd., Nassau, Bahama Islands. Nestle is one of the first food MNC operating in India, with a
existence of over a century. For a long time, Nestle Indias processes were limited to importing and
dealing of condensed milk and infant food. Over the years, the Company stretched its product range
with fresh products in instant coffee, noodles, sauces, pickles, culinary aids, chocolates and
confectionery, dairy products and mineral water.
Nestle was assimilated as a limited company in 1959. Nestle S A Switzerland, is one of the leading
companies in the worldwide foods industry. The major activities of the group include beverages (with
Nescafe as the flagship brand), milk products, processed foods, cooking aids, bakery products,
chocolates, sweets, pharmaceutical products (ophthalmic, surgical instruments etc).
Nestle has an existence in 84 countries worldwide. It has a total number of 510 factories out of which
220 are located in Europe, 154 in America and 136 in Africa, Asia and Oceania.
Nestle started its manufacturing processes with Milkmaid in 1962 at Moga factory. Manufacturing of
Nescafe started in 1964 at the same factory. The company set up another factory at Cherambadi in
Tamil Nadu, for production of infant foods, coffee etc.
Nestl India manufactures products of truly International quality under brand names such as,
MUNCH, POLO, NESTLE MILK, NESTLE DAHI, NESTLE FRUIT N MILK and NESTLE
FRUIT N DAHI.
Working Capital Trends and Liquidity Analysis of Nestle India from December 2007 to
December 2012
(Rs. In Crore)
December December December December December
2012 2011 2009 2008 2007
Inventories 734.04 575.95 498.74 434.911 401.22

Sundry
Debtors 115.42 63.29 64.19 45.59 53.49

Cash & Bank 25.55 19.45 26.73 12.66 15.75
Balance
Loan & 256.36 200.17 184.85 162.67 186.23
Advances
Fixed Deposits 201.66 235.84 128.86 181.03 22.01
Total Current 1333.03 1094.70 903.37 836.86 678.70
Assets
Total Current 2216.96 1751.62 1501.18 1259.76 1027.30
Liabilities
Net Current -883.93 -656.92 -597.81 -422.90 -348.60
Assets
Source: Compiled from the Annual Reports of Nestle India

Key Financial Ratios of Nestle India

December December December December December
2011 2010 2009 2008 2007
Current Ratio 0.42 0.62 0.60 0.66 0.66

Quick Ratio 0.24 0.27 0.24 0.29 0.23

Inventory Turnover Ratio 11.60 12.33 11.61 11.39 8.79

Debtors Turnover Ratio 83.83 98.22 93.68 87.37 64.09

Investment Turnover Ratio 11.60 12.33 11.61 11.39 10.02

No. of days in working
capital -42.48 -37.78 -41.86 -35.17 -35.85

Average finished goods
held 22.14 22.77 22.17 26.46 28.54

It is apparent from the above table that inventories has the major share (nearly more than 50 per cent)
in gross working capital tailed by loans and advances. The table is also revealing that the company is
dealing in negative working capital as the total current liabilities are more than total current assets.
The current ratio of the company is very little i.e.0.60:1 on an average as against the normal ratio i.e.
as per Tandon Committee

which shows that the company is retaining only 0.60 rupee of current assets
as a risk avoidance to meet the short-term liabilities. Quick ratio is also very little during study period.
Inventory turnover ratio varied between 8.79 times and 12.33 times which means the company has
acceptable inventory management. Debtors turnover ratio stood at 85.4 times on an average basis
during study period which reveals effective debtor management. Moreover, the company has negative
working capital during study period. A negative working capital is a symbol of managerial efficiency
in a business with little inventory and accounts receivables (which means it operates on an almost
stringently cash basis). In other situation, it is a signal that a company may be facing insolvency or
grave financial trouble. However, it is not with Nestle India. In fact, it indicates that it may be
gathering money from sale beforehand it pays for goods which mean it has decent cash flow.

Proctor & Gamble (P&G) India
P&G is one of the major and amongst the firmest developing consumer goods companies in India.
Recognized in 1964, P&G India now works for over 650 million consumers through India. Its
presence pan across the Beauty and Grooming segment, the Household Care segment as well as the
Health and Well Being segment with trusted brands that are household name across India. These
include Vicks, Ariel, Tide, Whisper, Olay, Gillette, Ambipur, Pampers, Pantene, Oral-B, Head &
Shoulders, Wella and Duracell.
Working Capital Trends and Liquidity Analysis of P&G India from 2008 to 2012
(Rs. In Crore)
June 2012 June 2011 June 2010 June 2009 June 2008
Inventories 92.27 65.33 54.41 53.98 46.52
Sundry 48.15 31.02 28.68 22.51 13.34
Debtors
Cash & Bank 182.37 3.76 8.76 4.52 6.67
Balance
Loan & 548.45 461.28 322.40 336.65 208.95
Advances
Fixed Deposits 0.00 126.19 223.57 83.51 159.81
Total Current 871.24 687.58 637.82 501.17 435.29
Assets
Total Current 401.49 284.98 300.01 217.94 224.61
Liabilities
Net Current 469.75 402.60 337.81 283.23 210.68
Assets
Source: Compiled from the Annual Reports of
P&G India
Key Financial Ratios of P&G India
June 2012 June 2011 June 2010
June
2009 June 2008

Current Ratio 2.17 2.41 2.13 2.30 1.94

Quick Ratio 1.94 2.16 1.92 2.02 1.70

Inventory Turnover 14.13 20.48 21.28 17.79 16.88

Debtors Turnover 32.78 33.54 35.21 43.11 46.03

Investment Turnover Ratio 14.13 20.48 21.28 17.79 16.88


Fixed Assets Turnover
Ratio 3.75 3.20 3.71 3.48 3.17

Total Assets Turnover Ratio 1.86 1.67 1.69 1.76 1.86


Average Finished Goods
held - 18.42 23.59 30.05 28.42


No. of days in working
capital 130.34 144.76 134.94 131.94 117.78


From the aforementioned table it can be observed that the company has encouraging working capital
throughout study period. It is detected that Loans and advances have main share in gross working
capital tailed by fixed deposits apart from in June 2012 (as fixed deposit was nil in 2012). The
capacity of net working capital has also improved over the study period. Cash and bank balance has
lowermost share in total current assets excluding in June 2012 and the percentage of cash and bank
balances have been improved i.e. 47 per cent radically in 2012 as compared to the last year. The
current ratio ranges between 1.94 to 2.41 which reveals that there is over investment in current assets
and the portions of current assets are nearly double the current liabilities during study period. Though,
inventory turnover ratio revealing an average value of 18.11 times which means effective organization
of inventory and more frequently the stock are sold. Debtor turnover ratio varies between 32.78 times
and 46.03 times and it has shown a declining trend throughout study period which is a pinch for the
company. The number of days in working capital of the company is on upper side and it is a sign of
company may be facing little cash trouble.

ITC Limited

ITC Limited is an Indian public conglomerate company (25.4% owned by British corporation, British
American Tobacco) headquartered in Kolkata, West Bengal, India
.
Its diversified business includes
four segments: Fast Moving Consumer Goods (FMCG), Hotels, Paperboards, Paper & Packaging and
Agri Business. ITC's annual turnover stood at $7 billion and market capitalization of over $34 billion.
The company has its registered office in Kolkata. It started off as the Imperial Tobacco Company, and
shares ancestry with Imperial Tobacco of the United Kingdom, but it is now fully independent, and
was rechristened to India Tobacco Company in 1970 and then to I.T.C. Limited in 1974. It employs
over 29,000 people at more than 60 locations across India and is listed on Forbes 2000. ITC Limited
completed 100 years on 24 August 2010.
ITC has a diversified presence in FMCG (Fast Moving Consumer Goods), Hotels, Paperboards &
Specialty Papers, Packaging, Agri-Business and Information Technology. While ITC is an
outstanding market leader in its traditional businesses of Hotels, Paperboards, Packaging, Agri-
Exports and Cigarettes, it is rapidly gaining market share even in its nascent businesses of Packaged
Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
Working Capital Trends and Liquidity Analysis of ITC Ltd. from 2008 to 2012
(Rs. In Crore)
March 2012 March 2011 March 2010 March 2009 March 2008
Inventories 5637.83 5267.53 4549.07 4599.72 4050.52
Sundry
Debtors 986.02 907.62 858.80 668.67 736.93
Cash & Bank 140.50 988.77 120.16 68.73 153.34
Balance
Loan & 1952.54 2173.89 1929.16 2150.21 1949.29
Advances
Total Current 11395.32 10592.28 8463.31 8450.99 7306.99
Assets
Total Current 10519.67 9772.94 9169.48 5862.08 5265.09
Liabilities
Net Current 875.65 819.34 -706.17 2588.91 2041.90
Assets
Source: Compiled from the Annual Reports of ITC Ltd.

Key Financial Ratios of ITC Ltd.

March March March March March
2012 2011 2010 2009 2008
Current Ratio 1.08 1.08 0.92 1.42 1.36

Quick Ratio 0.51 0.50 0.39 0.61 0.56

Inventory Turnover Ratio 6.53 6.05 6.04 5.26 5.51

Debtors Turnover Ratio 26.50 23.91 24.31 21.32 20.43

Investment Turnover
Ratio 6.53 6.05 6.04 5.26 5.51

Total Assets Turnover
Ratio 1.34 1.34 1.33 1.09 1.61

No. of days in working 12.56 13.97 -13.69 62.19 52.39
Capital
Average finished goods
held 40.51 40.67 36.33 64.35 43.88


It can be perceived from the aforementioned Table that ITC limited is dealing with positive working
capital for the duration of study period excluding in March 2010. During March 2010 current
liabilities show severe increase of 56 per cent but current assets continued to remain constant.
Amongst total current assets inventory has the major share and it encompasses more than 50 per cent
of gross working capital. Loans and advances have succeeding largest share in gross working capital
in last five years. The current ratio of the company lies between 0.92:1 and 1.42:1. It means on an
usual per every one rupee of current liabilities, the company has been preserving 1.17 rupees of
current assets as a caution to meet its short- term obligations which is good. Quick ratio lies between
0.39:1 and 0.61:1 during the period. It has been observed that there was constant increase in debtor
turnover ratio and inventory turnover ratio. Moreover the table revealed a mean value of debtor
turnover ratio at 23.29 times which specifies effective debtor management. As for as Number of days
in working capital is concerned, number of days in working capital has been shrinking during the
study period and even it turned into negative in 2010. Less the number of days better the position and
it means the company has better cash flow.


Hindustan Unilever limited (HUL)

Hindustan Unilever limited (HUL) is Indias major FMCG Company with the legacy of over 75 years
in India. It is owned by the British-Dutch company Unilever which controls 52% mainstream stake in
HUL. Its yields include foodstuffs, drinks, washing agents and special care produces. HUL was made
in 1933 as Lever Brothers India Limited and came into existence in 1956 as Hindustan Lever Limited
over a union of Lever Brothers, Hindustan Vanaspati Mfg. Co. Ltd. and United Traders Ltd.
HUL works to create improved future each day and aids folks to feel good, look good and get further
more out of lifetime with brands and services. With above 37 brands covering 22 different groupings
like soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, water
purifiers, etc. the company is a chunk of the daily life of lots of customers through India. Its range
comprises prominent household brands such as Lux, Lifeboy, Surf Excel, Rin, Wheel, Fair & Lovely,
Ponds, Vaseline, Lakme, Dove, Clinic Plus, Sunsilk, Pepsodent, CloseUp, Axe, Brook Bond, Bru,
Knorr, Kissan, Kwality Walls and Pureit.
In India, HUL is identified for its taut managing of working capital and the business has been
functioning with negative working capital ever since 2001. But the organization understood that as
competition toughens, there is still possibility for purifying operative efficiency and bringing down
working capital requirements. Unilever firms in India combined all facets of finance, accounts and
logistics into a widespread profitable function. They concentrated on cutting working capital
necessities through advanced supply chain supervision and use of Information Technology to increase
the efficiency of dealings.









Working Capital Trends and Liquidity Analysis of HUL from December 2009 to March 2013
(Rs. In crore)
Source: Compiled from the
Annual Reports of HUL.


















March
2013
March
2012
March
2011
March
2010
December
2009

Inventories

2516.65 2811.26 2179.93 2528.86 1953.60
Sundry
Debtors

678.99 943.20 678.44 536.89 443.37
Loan &
Advances

1314.72 1099.72 1068.31 1196.95 1083.28

Total
Current
Assets

6341.40 6492.19 5817.89 6040.05 3681.11

Total
Current
Liabilities

7633.36 7588.19 6925.52 5967.06 5303.31

Net
Current
Assets

-
1293.95
-
1095.01
-
1115.63
73.99 -1521.20







Key Financial Ratios of HUL
March
2013
March
2012
March
2011
March
2010
March
2009
Operating Profit
per share (Rs.)

15.38 12.34 12.82 13.60 9.54
Gross Profit
Margin (%)

14.04 12.41 14.70 13.50 15.86
Net Profit
margin (%)

12.07 11.56 12.29 12.69 12.58
Current Ratio

0.83 0.86 0.84 0.92 0.68
Quick Ratio

0.45 0.43 0.46 0.51 0.25
Inventory
Turnover Ratio

9.93 7.91 8.99 9.26 7.20
Debtors
Turnover Ratio

27.27 24.28 29.24 41.83 31.41
Fixed Assets
Turnover Ratio

6.26 5.63 5.35 7.81 9.80
Total Assets 6.37 8.31 7.66 9.22 10.53
Turnover Ratio

Average
Finished Goods
held
29.08 35.15 32.05 34.18 29.81
Number of days
in working
capital


-21.06 -20.02 -22.62 1.5 42.05




It is obvious from the overhead specified table that amongst current assets inventories has the main
portion and it dominates the gross working capital throughout the study period. Inventories and Loan
and Advances signify almost more than 50 per cent of gross working capital excluding during March
2009-2010. The current ratio or working capital ratio is perhaps the most commonly used of all the
ratios. This processes the capability of the firm to pay off its short- term maturity requirements. It
determines how quickly a company can meet its short- term commitments. It can be perceived from
the table that the current ratio of HUL varies between 0.68 and 0.92 during last five years. Quick ratio
lies between 0.25 and 0.51 during study period. It is a more stark check of liquidity than current ratio.
Inventory turnover ratio is maximum (9.93 times) in March 2013 and deepest (7.20 times) in
December while Debtor turnover ratio was maximum (41.83 times) in March 2009 and deepest (24.28
times) in March 2011. Debtors dealing appears to be quite satisfactory as more the number of times
debtors turnover, better the liquidity locus of the company.
Amount of days in working capital is used to describe that how many days a firm will take to convert
the working capital into income and lesser the number of days the better it will be. A lesser working
capital cycle means a business has decent cash flow. On the other hand, HUL has negative working
capital during study period excluding in 2010. A negative working capital cycle means what a
company purchases and sells goes into cash faster than it has to pay to its creditors and has more
capital available to fund progress. For a business to grow it needs access to cash and being able to free
up cash from working capital cycle is inexpensive than other sources of funding such as loans.




Conclusion

More companies go further down for the reason that of cash flow concerns, reasonably than
decreasing the profitability. Henceforth traditional judgment constantly advocates the belief
that a firm must have abundant cash to shield its prompt obligations. Still there is a growing
class of FMCG firms that assert otherwise. Contrasting from maximum other businesses, the
revenue of a FMCG business is not constrained by its capacity to yield, but its capability to
sell. They can yield cash so fast that they really have a negative working capital. This
happens since buyers pay straight and so rapidly, the industry has no struggle raising cash
(like flipkart.com, KFC). In these businesses produces are supplied and retailed to the buyers
before the company even reimburses for them. Hence the emphasis is laid on their resources
and publicising and either subcontract their manufacturing or make a fractional investment
(as matched to their revenue) in plant and machines. Hence there is a restricted room to
cultivate funds by promising the plant and machinery. The improvements in Supply chain
management, enterprise resource planning and application of Just in time have prepared the
firms to become leaner and henceforth now its not likely to nurture considerable funds
through stocks. Normally a company mortgages its plant, machines or stock to raise the bank
loan/overdraft vital to fund its process. Understanding these restrictions, many firms started
spending their negotiating powers over their consumers and suppliers to fund their progress
in operations. Negative working capital is a signal of managerial efficiency in a business with
little inventory and accounts receivables (which means it operates on an almost sternly cash
basis). In other situation, it is a sign a company may be facing liquidation or grave financial
trouble.