Vous êtes sur la page 1sur 68

INTRODUCTION:

This study tries to explore the relationship between working capital


management and profitability of Nestlé India and Britannia. Working Capital can be
defined as the amount when current asset is surpassing current liabilities. The focus of
this study is to analyze how the company manages its working capital on the basis of
cash, inventory period, receivable period and payable period management and how it
influences the profitability of an organization. Most of the researchers found that
degree of efficiency of administration of working capital largely determines the
success or failures of overall operations of an organization.

Working capital management is an area which emphasize on the productive


utilization available funds created out of good cash flows, financial solvency and
growth strategies at the company. It represents the liquidity position of business
indicating the management of short term assets and liabilities. Basically net working
capital of a company is determined from the deviation of current assets and current
liabilities. When current assets are higher than current liabilities, that means the
company is capable enough to continue its operations and it also defines that the
company have sufficient funds to satisfy its short-term debt and upcoming operational
expenses. Working capital management of the Nestle is highly satisfactory due to
efficient management of inventory, debtors, cash balances and working funds where
the major elements of working capital were inventory, debtors, cash balances and
short term investments. Working capital is a measure of both a company's efficiency
and its short-term financial health. Working capital is calculated as:

Working Capital = Current Assets - Current Liabilities

WORKING CAPITAL POLICY:

Working capital (abbreviated WC) is a financial metric which represents


operating liquidity available to a business, organization or other entity, including
governmental entity. Along with fixed assets such as plant and equipment, working
capital is considered a part of operating capital. Net working capital is calculated as
current assets minus current liabilities. It is a derivation of working capital that is
commonly used in valuation techniques such as DCFs (Discounted cash flows). If

1
current assets are less than current liabilities, an entity has a working capital
deficiency, also called a working capital deficit. A company can be endowed with
assets and profitability but short of liquidity if its assets cannot readily be converted
into cash. Positive working capital is required to ensure that a firm is able to continue
its operations and that it has sufficient funds to satisfy both maturing short-term debt
and upcoming operational expenses. The management of working capital involves
managing inventories, accounts receivable and payable, and cash.

Decisions relating to working capital and short term financing are referred to
as working capital management. These involve managing the relationship between a
firm's short-term assets and its short-term liabilities. The goal of working capital
management is to ensure that the firm is able to continue its operations and that it has
sufficient cash flow to satisfy both maturing short-term debt and upcoming
operational expenses. A popular measure of working capital management is the cash
conversion cycle, that is, the time span between the expenditure for the purchases of
raw materials and the collection of sales of finished goods for example, found that the
longer the time lag, the larger the investment in working capital. A long cash
conversion cycle might increase profitability because it leads to higher sales.

However, corporate profitability might decrease with the cash conversion


cycle, if the costs of higher investment in working capital rise faster than the benefits
of holding more inventories and/or granting more trade credit to customers. For many
manufacturing firms the current assets account for over half of their total assets. The
management of working capital may have both negative and positive impact of the
firm’s profitability, which in turn, has negative and positive impact on the
shareholders‟ wealth. The present study seeks to explore in detail these effects.

Firms may have an optimal level of working capital that maximizes their
value. Large inventory and generous trade credit policy may lead to high sales. The
larger inventory also reduces the risk of a stock-out. Trade credit may stimulate sales
because it allows a firm to access product quality before paying. Another component
of working capital is accounts payables. It is believed that delaying payment of
accounts payable to suppliers allows firms to access the quality of bough products and
can be expensive if a firm is offered a discount for the early payment. By the same
token, uncollected accounts receivables can lead to cash inflow problems for the firm.

2
In simple terms working capital can be defined as current assets minus current
liabilities. When a company is unable to manage its current liability through its
current assets liquidity problem arises. This can threaten the future existence of the
company. On the other hand, when there are excess cash, a company should invest in
short term securities to enhance the wealth of the shareholders. Working capital
policy can be mainly classified in three categories. They are defensive/moderate
policy, aggressive policy and conservative policy. If the firm can forecast accurately
its level and pattern of sales, inventory procurement time, inventory usage rates, level
and pattern of production, production cycle time, split between cash sales and credit
sales, collection period, and other factors which impinge on working capital
components, the investment in current assets can be defined uniquely. In case of
uncertainty, the outlay on current assets would consist of a basic component meant to
meet normal requirements and a safety component meant to cope with unusual
demands and requirements. The safety component depends on how conservative or
aggressive is the current asset policy of the firm. If the firm pursues very conservative
policy, it would carry a high level of current assets in relation to sales explained in the
below figure. 1.1.

Figure no. 1.1 three alternative working capital investment policies

If the firm adopts a moderate policy, it would carry a moderate level of current
assets in relation to sales. Finally, if the firm follows a highly aggressive policy, it
would carry a low level of current assets in relation to sales. The relationship between

3
current assets and sales under these different current asset policies is shown in the
above figure.

A conservative current asset policy tends to reduce risk. The surplus current
assets under this policy enable the firm to cope rather easily with variations in sales,
production plans, and procurement time. Further, the higher liquidity associated with
this policy diminishes the chances of technical insolvency. The reduction of risk,
however, is also accompanied by lower expected profitability.

The aggressive working capital policy is company’s intention to fund its


working capital through short term debt. This policy is thought to be cheap because
funds such as overdraft can be called upon when needed and the interest will be paid
only when an overdraft is taken unlike long-term debt where interest has to be paid
for the entire loaned amount for the year.

INVENTORY PERIOD:

Inventory Period is an efficiency ratio that shows how quickly a company uses
up its supply of goods over a given time frame. While inventory period is shortening
in some industries, such as grocery stores, then in others, such as department stores,
comparatively lengthening inventory period means that a company has poor sales or
too much inventory. It is computed by dividing inventories by the company's average
daily cost of goods sold.

Inventory Period= Inventories/ (COGS/365)

Inventory management is a process of maintaining the raw materials when


entered in the company till it is converted into finished goods. The importance of
keeping the right level of inventory lies in the fact that a maximum proportion of
working capital remains blocked in the inventory until it is completely sold off and
debtors realized.

Objectives:

1. To minimize investments in inventory


2. To meet a demand for the product by efficiently organizing the production and
sales operations

4
Thus the objective of the inventory management is to maintain an optimum level of
inventory at right place with minimum of cost to avoid a stock out option.
Maintaining optimum level of inventory also has other benefits like:

1. Meeting the market demand when it arises


2. Meeting the unexpected demand when it arises
3. Handling seasonal or cyclical fluctuations
4. Customer satisfaction
5. Minimizing cost of sales so that affordability of sales

Cost of holding inventory:

1. Those cost that arise due to storing of inventory (Carrying Cost)


2. The opportunity cost of fund

Benefits of holding inventory: There are various benefits of holding inventory-

1. Benefits in Purchasing
2. Benefits in Production
3. Benefits in Work in Process
4. Benefits in Sales

Inventory includes all types of stocks. For effective working capital


management, inventory needs to be managed effectively. The level of inventory
should be such that the total cost of ordering and holding inventory is the least.
Simultaneously, stock out costs should also be minimized. Business, therefore, should
fix the minimum safety stock level, re-order level and ordering quantity so that the
inventory cost is reduced and its management becomes efficient.

The basic responsibility of the finance manager is to make sure the firm’s cash
flows are managed efficiently. Efficient management of inventory should ultimately
result in the maximization of the owner’s wealth. In order to minimize cash
requirements, inventory should be turned over as quickly as possible, avoiding stock-
outs that might result in closing down the production line or lead to loss of sales.

5
ACCOUNTS RECEIVABLE PERIOD:

AR (Accounts Receivable) is the length of time required to collect cash


receipts. It is also called "Days of Sales Outstanding". Lesser the time of Accounts
Receivable that means more efficient CCC (cash conversion cycle). AR is a very
important module of WCM that fulfills its term to efficiency. Accounts Receivable is
calculated by dividing the receivables by the net sale per day.

Accounts Receivable Period= Receivables/ (Net Sales/365)

Significance:

Debtors Turnover indicates the number of times debtor’s turnover each year.
Generally, the higher the value of debtors’ turnover, the more efficient the
management of the company.

Analysis:

1. As stated earlier, the higher the value of debtors’ turnover, the more efficient
the management of the company. But as it is evident from the graph that the
ratio is dipping with each successive year, it serves as a sign of caution for the
management to look after.
2. Also, this ratio must be seen in conjunction with the creditors‟ turnover ratio.
Being a capital intensive company, it is still considered if your debtors‟
turnover is fairly good in comparison with creditors‟ turnover. But
nonetheless the management should keep a vigil eye.

ACCOUNTS PAYABLE PERIOD:

Accounts Payable is very important component of WCM. It is the length of


time for which the firm is able to delay payment on the purchase of raw materials to
its suppliers. The longer the period of AP, company has better opportunity to finance
on other things. It helps the company to reduce costs by not taking loans for other
expenses. Accounts Payable Period is calculated by dividing trade payables by the
company's cost of goods sold per day.

Accounts Payable Period= Trade Payables/ (COGS/365)

6
Significance:

A high creditors turnover ratio or a lower credit period ratio signifies that the creditors
are being paid promptly. This situation enhances the credit worthiness of the
company. However, a very favorable ratio to this effect also shows that the business is
not taking the full advantage of the credit facilities allowed by the creditors. We can
interpret this ratio in exactly the same way as the debtors‟ turnover ratio.

Analysis:

As is evident, the company has tried to maintain a moderate creditors ratio so as to


avail the full advantage of the credit facility as well as to maintain its rapport with its
creditors.

CASH CONVERSION CYCLE:

Operating Cycle is the interval between the order of inventory stock and the
date when cash is collected from receivables. And CCC begins when the company
pays cash to suppliers for the materials purchased and ends when cash is collected
from customers for credit sales. In general,

CCC = Operating Cycle - Accounts Payable Period Or

CCC = (Inventory Period + Accounts Receivable Period) - Accounts Payable


Period

CURRENT RATIO:

The liquidity and efficiency ratio that evaluates an organization’s capability in


paying off its short term debts using the current assets is called current ratio.

Current ratio = current assets/ current liability

Current ratio is calculated by dividing current assets by current liabilities. Current


assets include cash and those assets that can be converted into cash within a year, such
as marketable securities, debtors, inventories, loans and advances. All the obligations
maturing within a year are included in current liabilities. Current liabilities include

7
creditors, bills payable, accrued expenses, short term bank loan, income tax liability
and long-term debt maturing in the current year.

Significance

 It indicates the availability of current assets in rupees for every one rupee of current
liability. A ratio of greater than one means that the firm has more current assets than
current claims against them. In India, the conventional rule is to have a ratio of
1.33(internationally it is 2).

 The current ratio represents the margin of safety for the creditors. The higher the
current ratio, the greater the margin of safety; the larger the amount of current assets
in relation to current liabilities, the more the firm’s ability to meet its current
obligations.

QUICK RATIO:

Quick ratio measures how efficiently the company can pay off its short term
financial liabilities. It is a better measure than current ratio as it deducts less liquid
assets such as inventory.

Quick ratio = current assets- inventory/current liability.

An asset is liquid if it can be converted into cash immediately without a loss of


value. e.g. Cash, Debtors, Bills receivable and marketable securities. Inventories are
considered to be less liquid as it requires time for realizing into cash, their value also
has tendency to fluctuate.

Significance

Generally, a quick ratio of 1:1 is considered to represent a satisfactory current


financial condition. This test is more significant as compare to current ratio to fulfill
the firm’s obligations.

Profitability ratios are a class of financial metrics that are used to assess a
business's ability to generate earnings compared to its expenses and other relevant
costs incurred during a specific period of time. For most of these ratios, having a

8
higher value relative to a competitor's ratio or relative to the same ratio from a
previous period indicates that the company is doing well.

Return on Assets

Profitability is assessed relative to costs and expenses, and it is analyzed in


comparison to assets to see how effective a company is in deploying assets to generate
sales and eventually profits. The term return in the ROA ratio customarily refers to
net profit or net income, the amount of earnings from sales after all costs, expenses
and taxes. The more assets a company has amassed, the more sales and potentially
more profits the company may generate. As economies of scale help lower costs and
improve margins, return may grow at a faster rate than assets, ultimately increasing
return on assets.

Return on Equity

ROE is a ratio that concerns a company's equity holders the most, since it
measures their ability of earning return on their equity investments. ROE may
increase dramatically without any equity addition when it can simply benefit from a
higher return helped by a larger asset base. As a company increases its asset size and
generates better return with higher margins, equity holders can retain much of the
return growth when additional assets are the result of debt use.

Net profit margin measures the profitability of your business. The formula is:

net profit margin = (net income / net sales) * 100

Gross profit margin measures the cost of production. The formula is:

Gross profit margin = (gross profit / net sales) * 100.

Operating margin tells you how much costs unrelated to producing the product for
sale are cutting into your profits. Costs unrelated to production can include such
things as general business, staff and administrative expenses of the business. Net
operating margin is often referred to as your earnings before interest and taxes or
EBIT. The formula for this is:

Operating margin = (operating profit / net sales) * 100

9
Financial Analysis is the process of identifying the financial strengths and weaknesses
of the firm by properly establishing relationships between the items of the balance
sheet and the profit & loss account. Financial analysis can be undertaken by
management of the firm, viz. Owners, creditors, investors and others.

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the


indicated quotient of two mathematical expressions” and as “the relationship between
two or more things”. Ratios help to summarize large quantities of financial data and to
make qualitative judgement about the firm’s financial performance. WORKING
CAPITAL MANAGEMENT deals with the management of current assets. The
management of current assets is similar to that of fixed assets in the sense that in both
cases firm analyses their effect on their return and risk profile. The management of
fixed assets and current assets, however, differ in three aspects.

First, in managing fixed assets, time is a very important factor; consequently,


discounting and compounding techniques play a significant role in capital budgeting.
Second, the large holding of current assets, especially cash, strengthens the firm's
liquidity position (and reduces risk). Third, levels of fixed as well as current assets
depend upon expected sales, but it is only current assets that can be adjusted with
sales fluctuations in the short run.

Financial statement refers to such statement which contains financial information


about an enterprise. Their report profitability and the financial position of the business
at the end of the Accounting period. The term financial statement includes at least two
statements which the accountant prepares at the end of accounting period. The two
statements are

 The Balance Sheet


 Profit and Loss Account

They provide some extremely useful information to the extent that balance Sheet
mirrors the financial position on a particular date in terms structure of assets,
liabilities and owner equity, and so on and the Profit and Loss account shows the
result of operations during a certain period of time in terms of revenues obtained and
the cost incurred during the year. Thus the financial statement provides a summarized
view of financial position and operations of a firm. The first task of financial analysis
10
is to select the information relevant to the decision under consideration to total
information contained in the financial statement. The second step is to arrange the
information in a way to highlight significant relationship. The final step is
interpretation and drawing of the interface and conclusions. Financial Statement is the
process of selection, relation and evaluation.

PURPOSE OF ANALYSIS OF FINANCIAL STATEMENTS

 To know the earning capacity or profitability.


 To know the solvency.
 To know the financial strengths.
 To know the capability of payment of interest and dividends.
 To make comparative study with other firm.
 To know the trend of the business.
 To know the efficiency of the management.
 To provide useful information to the
management.

11
METHODOLOGY:

Methodology is the technique through which the research will be done. To do


this research secondary data have been used mostly. This study contains the analysis
of five years’ data of Nestle from the period of 2012 to 2016. The present study is
descriptive and analytical in approach. It is purely based on secondary data which
were collected from the published annual reports of NESTLE, journals, books,
various websites. To analyze the corporate profitability and working capital
management various tools such as ratio analysis, mean, standard deviation, skewness
and kurtosis shall be used. For studying the relationship between the corporate
profitability and working capital management, coefficient of correlation, regression
analysis would be used.

OBJECTIVE:

1. To evaluate liquidity position & inventory of Nestle and Britannia.


2. To study the profitability and working capital management of Nestle and
Britannia.
3. To examine how working capital is managed at Nestle and Britannia and
how it influences the overall profitability of the company.

NEED FOR THE STUDY:

The study is carried out to know how Nestle India pvt. Ltd. manages its working
capital. And to evaluate the relationship between its working capital concerning cash
conversion cycle, account receivables, payables and its profitability.

SCOPE:

The study focuses on Nestle India pvt ltd and Britannia ltd. The annual reports
for five years covering 2012 to 2016 are used to know the relationship of working
capital management with profitability of Nestle and Britannia. Descriptive analysis
(mean, standard deviation, kurtosis etc.,) and correlation has been used.

12
SAMPLE:

Financial data of Nestle and Britannia from the year 2012-2016 are used.

STATISTICAL TOOLS:

The tools that are used:


1. Descriptive analysis (mean, standard deviation, CV)
2. Correlation

LIMITATIONS:

1. The study is limited to Nestle India and Britannia ltd.


2. All the data obtained is secondary data only.
3. 5 years’ data has been used in the report.

13
INDUSTRY PROFILE:

The changing preferences of the upward mobile middle class families from the
urban areas have given prominence to food processing sector and also fueled the
growth in the last few years to make the industry the fifth largest in India in terms of
production and export growth. Indian food processing industry was between US$121
Billion to US$130 Billion (various sources) and accounts for 30% to 35% of the total
food market.

Food processing industry includes the following sub-sectors:

1. Dairy – milk, milk powder, ice cream, butter, cheese and ghee
2. Fruits & Vegetables –Slices, Pulps, Juices, Concentrates, Beverages, Potato
wafers/ chips etc.,
3. Grains & Cereals – Flour, Bakery products, Corn flakes, Starch, Glucose,
Malted foods, Vermicelli, Beer and malt extracts
4. Consumer goods, which includes snack food, biscuits, ready-to-eat foods,
alcoholic and non-alcoholic beverages.
Food processing industry has been performing better than agriculture and
manufacturing. FY13 growth was lower at 3% due to lower growth in agriculture
and manufacturing; however, the industry has performed marginally better than
both those sectors. The new developments include establishment of cold storage
facilities, food parks, packaging centers and irradiation centers.

The fast moving consumer goods (FMCG) segment is the fourth largest sector in the
Indian economy. The market size of FMCG in India is estimated to grow from US$
30 billion in 2011 to US$ 74 billion in 2018.

Food products is the leading segment, accounting for 43 per cent of the overall
market. Personal care (22 per cent) and fabric care (12 per cent) come next in terms of
market share. Growing awareness, easier access, and changing lifestyles have been
the key growth drivers for the sector.

Nestle and Britannia are mainly into milk & diary and consumer foods.

Top Companies

14
The top ten India FMCG brands are:

1. Hindustan Unilever Ltd.


2. ITC (Indian Tobacco Company)
3. Nestlé India
4. Britannia Industries
5. GCMMF (AMUL)
6. Dabur India
7. Godrej
8. Cadbury India
9. Procter & Gamble Hygiene and Health Care
10. Marico Industries

DEMAND DRIVERS

India is the seventh largest country in the world, with the largest area under
cultivation and a strong agricultural base. India has one of the biggest emerging
markets, with over 100 crore population, and a 25 crore plus strong young middle
class. It is one of the largest producers of the agricultural and allied goods; and yet the
food processing segment in India contributed only 1.49% to the GDP.

The sector is in its nascent stage as traditionally Indians prefer the


consumption of raw and fresh products. Recently, the trend has been changing as the
FPI has shown an impressive growth in the last few years. Some of the factors that
have triggered the change are listed below:

Changing profile and tastes of the consumer

Rapid urbanization, increase in the number of nuclear families, increase in the


number of working women, less time devoted in the household have changed a lot of
habits of the Indian families. Increased literacy and rising per capita income have
induced the customers to increase them spend on value added food, which has a
higher shelf life, packs greater nutritive value and takes less time to cook. This has led
to change in consumer tastes and preferences towards processed food.

15
Product innovation

Companies are offering a wider range of products to the consumers as a result


of their investments into product innovation, research and development. They are
moving up the value chain, e.g. cooperatives are transitioning from being pure
producers of milk to offering a wide range of dairy products such as flavored yogurts,
ice creams, etc. New entrants are trying to entice the markets and capture market
share by offering new flavors and localized versions of international products such as
chips made in Indian flavors and from Indian spices.

Increased spending on healthy and nutritional foods

The changing lifestyle and working habits of the younger India has led to a
rise in lifestyle diseases such as diabetes, blood pressure, cardiac problems, muscular
pains, etc. With a rise in disposable income levels and increasing awareness,
consumers spend on healthy and nutritional food has also gone up.

Advent of branded food and organized retail

With a higher disposable income and a higher propensity to spend, the


consumers are looking for quality branded food. Organized retail has helped a greater
penetration in the rural and tier II markets in India and has improved the shopping
experience of the consumers. It has also helped to maintain the shelf life of the
packaged food by providing the required infrastructure.

Rising export opportunities

The demand of processed food is higher in the developed economies where


the pace of life is much faster than that of emerging markets. Moreover, the
preference for Indian processed food such as pickles has added to the global demand.
India has a greater integration with the global economy and its proximity to key
export markets serves as a stronger link between the trading countries.

Better Preservation and Packaging techniques

With improvement in technology, better preserving and packaging techniques


have been developed that not only increase the shelf life but also improve the nutritive

16
value of the processed food. A more conscious consumer is increasingly demanding
such processed food as it promises to be more hygienic and nutritive than the raw
agricultural produce which has high levels of pesticides, insecticides spayed upon it.

17
COMPANY PROFILE:

NESTLÉ India is a subsidiary of NESTLÉ S.A. of Switzerland. With eight


factories and a large number of co-packers, Nestlé India is a vibrant Company that
provides consumers in India with products of global standards and is committed to
long-term sustainable growth and shareholder satisfaction.

Background

Nestle SA, Switzerland is amongst the world’s largest food and beverages
companies. The company is progressively evolving from a respected, trustworthy
food and beverage company to a respected, trustworthy food, beverage, nutrition,
health and wellness company. This objective is encapsulated in “Good Food, Good
Life”. The principle activities of the group encompass: beverages, milk products,
nutrition and ice cream; prepared dishes and cooking aids; chocolate, confectionery
and biscuits; water; and pet care. It has 511 factories in 86 countries around the world.

Nestle India

With an employee-strength of over 3000 and turnover of US$ 497 million in


2003, Nestle India is one of the leading companies in the FMCG space in India. The
company is acknowledged amongst India’s ‘Most Respected Companies’ and
amongst the ‘Top Wealth Creators of India’.

During the first half 2004, the company registered a total income of US$ 257.8
million and net profit of US$ 23.73 million. Nestlé India is a 61.85 per cent subsidiary
of Nestle S.A. Switzerland and was incorporated as a limited company in 1959. It
produces a wide range of products including beverages, prepared dishes and cooking
aids, milk products and nutrition, chocolate and confectionery. Milk products and
nutrition account for around 45 per cent of Nestlé India’s total revenues. The
company’s beverage products generate 22 per cent of the company’s total revenues,
while prepared dishes and cooking aids generate 18 per cent, and chocolate and
confectionery 15 per cent. Major player in processed foods Nestlé India has over the
years built strong brands like MAGGI, NESCAFE, CERELAC, LACTOGEN,
KITKAT and POLO.

18
Nestle is major player in many segments of the FMCG sector such as noodles
and sauces [MAGGI], instant coffee [NESCAFE] and weaning foods. Nestle products
are sold throughout India and are also exported to Russia, Hungary, Japan, USA and
several other countries. These include certain international products like Nescafe and
Lactogenic, as well as select culinary products to meet the demand of the ethnic
Indian population living abroad. For three years in succession [from 1999-2000 to
2001-2002], Nestle India was recognized with the top Exporter Award for export of
Instant Coffee, and for export of all coffees to Russia and CIS Countries.

Factors for success

The culture of innovation and renovation, continuous improvement and the


thrust on value-for-money and affordability have helped the company to focus on
adding value for the consumer. The company has continuously focused on operational
efficiency; improving product availability and visibility and initiated efforts to make
its products more relevant to the consumers. This has been supported by the
distribution of smaller stock-keeping units (SKUs).

There has been continuous focus on the seven value drivers, namely:

1. Sales growth
2. Profit margin
3. Working capital intensity
4. Fixed capital intensity
5. Income tax rate
6. Cost of capital
7. Value growth duration

Promotion strategy for market expansion.

The following are some of the strategies used by Nestle for market expansion:

1. Availability of NESCAFE enhanced through an expansion of the vending


machine network.

19
2. New consumption opportunities for chocolates and confectionery were
identified and developed in areas like railway platforms, college canteens and
major events.
3. Nestle set up ‘Café Nescafe’ and ‘Coffee Corners’ across metros and mini-
metros.

Thrust on supply chain

During the past few years, Nestle India has continuously focused on
improving the supply chain to reduce wastage, improve efficiencies and provide
consumers with fresh stocks all the time.

1. Reduction in the finished goods inventory pipeline to improve freshness of


stocks and reduce working capital
2. Control on distribution costs through innovative measures
3. Sustained improvement in customer service levels to improve product
availability across all geographies and channels
4. Reduction in obsolescence of materials Competence in research and
development

The company has access to the Nestlé Group’s proprietary technology/brands,


expertise and the extensive centralized research and development facilities. The
culture of innovation and renovation and benchmarking of consumers’ tastes and
products is facilitated in the company by the unique “Experimental Kitchen” and
“Sensory Laboratory” at the Head Office.

Leveraging the India Advantage

Outsourcing manufacturing

Nestlé India has six factories and a large number of co-packers who
manufacture products to Nestlé specifications.

Outsourcing IT advantage

The Nestlé Group is in the process of implementing the GLOBE project across
its operations worldwide. GLOBE is a unique project and the largest of its kind and

20
will enable the Nestlé Group to maintain its competitive advantage in the increasingly
complex environments of the future.

Leveraging the vast consumer base in India

Nestle has an optimistic outlook on the Indian economy as the income of


people is increasing and the lifestyles are changing. Nestle is keen on leveraging the
vast consumer market of India.

Future plans

1. Nestlé India’s objective is to manufacture and market the company’s products


in such a way so as to create value that can be sustained over the long term for
consumers, shareholders, employees and business partners.
2. Nestle aims to create value for consumers that can be sustained over the long
term by offering a wide variety of high quality, safe food products at
affordable prices.
3. The company continuously focuses its efforts to better understand the
changing lifestyles of modern India and anticipate consumer needs in order to
provide convenience, taste, nutrition and wellness through its product
offerings.

The Company insists on honesty, integrity and fairness in all aspects of its
business and expects the same in its relationships. This has earned it the trust and
respect of every strata of society that it comes in contact with and is acknowledged
amongst India's 'Most Respected Companies' and amongst the 'Top Wealth Creators
of India'.

Nestlé is the world’s largest food and beverage company. It have more than 2000
brands ranging from global icons to local favorites, and are present in 191 countries
around the world.

Twenty-nine of Nestlé's brands have annual sales of about US$1.1 billion


including Espresso, Nescafé, Kit Kat, Smarties, and Maggi. Nestlé has 447 factories,
operates in 194 countries, and employs around 339,000 people.

21
It is one of the main shareholders of L'Oreal, the world's largest cosmetics
company.

Nestlé was formed in 1905 by the merger of the Anglo-Swiss Milk Company,
established in 1866 by brothers George and Charles Page. The company grew
significantly during the First World War and again following the Second World War,
expanding its offerings beyond its early condensed milk and infant formula products.
The company has made a number of corporate acquisitions, including Crosse &
Blackwell in 1950, Findus in 1963, Libby's in 1971, Rowntree Mackintosh in 1988,
and Gerber in 2007.

Nestlé has a primary listing on the SIX Swiss Exchange and is a constituent of the
Swiss Market Index. It has a secondary listing on Euronext.

PRESENCE ACROSS INDIA:

After more than a century-old association with the country, today, NESTLÉ
India has presence across India with 8 manufacturing facilities and 4 branch offices.

NESTLÉ India set up its first manufacturing facility at Moga (Punjab) in 1961
followed by its manufacturing facilities at Choladi (Tamil Nadu), in 1967; Nanjangud
(Karnataka), in 1989; Samalkha (Haryana), in 1992; Ponda and Bicholim (Goa), in
1995 and 1997, respectively; and Pantnagar (Uttarakhand), in 2006. In 2012, Nestlé
India set up its 8th manufacturing facility at Tahliwal (HimachalPradesh).
The 4 Branch Offices located at Delhi, Mumbai, Chennai and Kolkata help facilitate
the sales and marketing activities. The NESTLÉ India’s Head Office is located in
Gurgaon, Haryana.

NESTLE PURPOSE:

Nestlé's purpose is enhancing quality of life and contributing to a healthier


future. They want to help shape a better and healthier world. They also want to inspire
people to live healthier lives. This is how they contribute to society while ensuring the
long-term success of our company.

VALUES AND VISION:

22
To be a leading, competitive, Nutrition, Health and Wellness Company
delivering improved shareholder value by being a preferred corporate citizen,
preferred employer, preferred supplier selling preferred products.

MISSION:

The mission of "Good Food, Good Life" is to provide consumers with the best
tasting, most nutritious choices in a wide range of food and beverage categories and
eating occasions, from morning to night.

PRODUCT BRANDS:

1. Beverages
2. Bottled Water
3. Cereals
4. Chocolate & Confectionery
5. Coffee
6. Dairy
7. Food
8. Nestlé Professional
9. Health Sciences

23
BRITANNIA:

Britannia Industries is one of India’s leading food companies with a 100-year


legacy and annual revenues in excess of Rs.9000 Cr. Britannia is among the most
trusted food brands, and manufactures India’s favorite brands like Good Day, Tiger,
Nutri Choice, Milk Bekis and Marie Gold which are household names in India.
Britannia’s product portfolio includes Biscuits, Bread, Cakes, Rusk, and Dairy
products including Cheese, Beverages, Milk and Yoghurt. Britannia is a brand which
many generations of Indians have grown up with and our brands are cherished and
loved in India and the world over. Britannia products are available across the country
in close to 5 million retail outlets and reach over 50% of Indian homes.

Britannia Industries Limited (A WADIA Enterprise) is an Indian food-


products corporation registered in Kolkata, India. It sells its Britannia and Tiger
brands of biscuit throughout India. Britannia has an estimated market share of 38%.

The Company's principal activity is the manufacture and sale of biscuits,


bread, rusk, cakes and dairy products.

The company was established in 1892. Initially, biscuits were manufactured in


a small house in central Kolkata. Later, the enterprise was acquired by the Gupta
brothers mainly Nalin Chandra Gupta, an attorney, and operated under V.K Brothers."
In 1918, C.H. Holmes, an English businessman in Kolkata, was taken on as a partner
and The Britannia Biscuit Company Limited (BBCo) was launched. The Mumbai
factory was set up in 1924 and Peek Freans UK, acquired a controlling interest in
BBCo. Biscuits were in high demand during World War II, which gave a boost to the
company’s sales. The company name was changed to the current "Britannia Industries
Limited" in 1979. In 1982 the American company Nabisco Brands, Inc. acquired the
parent of Peek Freans and became a major foreign shareholder.

The company’s Dairy business contributes close to 5 per cent of revenue and
Britannia dairy products directly reach 100,000 outlets.

Britannia Bread is the largest brand in the organized bread market with an
annual turnover of over 1 lac tons in volume and Rs.450 crores in value. The business

24
operates with 13 factories and 4 franchisees selling close to 1 MN loaves daily across
more than 100 cities and towns of India.

We have a presence in more than 60 countries across the globe. Our


international footprint includes presence in Middle East through local manufacturing
in UAE and Oman, are the No 2 biscuit player in UAE with a strong contention to
leadership and have a similarly strong market position in the other GCC countries. We
are also the market leaders in Nepal and are in the process of investing a
manufacturing facility in the country.

Our foot print spreads across North America, Europe, Africa and South East
Asia through exports and we are investing in a state- of- the- art facility in Mundra
SEZ, Gujarat, to service the exports markets.

Our strategic expansion plan is based on the principle of ‘One new market a
year’. We plan to expand through local operations in Africa and South East Asia in
the coming years.

Britannia takes pride in having stayed true to its credo, ‘Eat Healthy, Think
Better’. Having removed over 8500 tons of Trans Fats from products, Britannia
became India’s first Zero Trans Fat Company. Over 50% of the Company’s portfolio
is enriched with essential micro- nutrients which nourish the body.

The company set up the Britannia Nutrition Foundation in 2009, and began
working on public private partnership to address malnutrition amongst under-
privileged children and women.

Brand Britannia is listed amongst the most trusted, valuable and popular
brands in various surveys conducted by prestigious organizations like Millward
Brown, IMRB, WPP Group and Havas Media Group to name a few.

Our relentless focus on quality and freshness have won us prestigious


accolades including the Golden Peacock National Quality Award and the
Ramakrishna Bajaj National Quality Award.

25
However, the award that we cherish the most is the one given by our
consumers. Britannia is recognized as one of the most trusted, valuable and popular
brands among Indian consumers in various reputed surveys.

Britannia believes that ‘Taste & Trust’ are its sobriquet and will constantly
endeavor to make a Billion Indians reach out for a delightful and healthy Britannia
product several times a day! OVERVIEW OF BRITANNIA INDUSTRIES LTD
Baking practices were well known to Indian cuisine for thousands of years, but the
humble biscuit became a familiar and commonplace item of diet only during the
20thcentury. The products and marketing strategies of India’s premier food company
Britannia Industries. Limited over the last century have been responsible for this
remarkable dietary acculturation. The entire biscuits’ market is estimated to be 1.1
million tons per annum, and valued at over Rs.50 billion.

The biscuits segment enjoys one of the most developed markets for any item
of mass consumption, covering over 90 per cent of the overall potential market. This
implies that over 900 million Indians buy and eat biscuits, with varying frequency in
any year.

The market is highly competitive at the supply-side, with thousands of small-


scale manufacturers as well as others in the organized, large-scale sector.

The strength of the Britannia brand is demonstrated by the fact that it stands
far above all in this fiercely competitive market, with over 46 per cent market share,
by value.

ACHIEVEMENTS

Britannia is synonymous with the rise and growth of the biscuit industry in
India. Throughout this process it has displayed an uncanny intuition about emerging
popular tastes for biscuits. This foresight, coupled with the will to innovate and
evolve new products, has been the impetus that has propelled the Britannia brand
ahead of the rest. Being the market leader, Britannia Industries operates under an
underlying principle of setting its own rules and standards that have almost always
become the adopted paradigm for the entire biscuit industry.

26
It brought the health dimension to an industry that was traditionally driven by
taste alone. This is reflected in Britannia’s brand slogan, introduced in 1997 that
exhorted consumers to ‘Eat Healthy, Think Better’. This was quickly embraced by the
entire industry to come up with similar promotional campaigns showing biscuits to be
an epitome of a healthy, happy diet.

Going beyond biscuits has been the most difficult challenge and a litmus test
form the company. Britannia entered the dairy category with the launch of Britannia
Milk man range of dairy products. With the success of Britannia Milkman Cheese, it
achieved niche for itself in a category that was defined by a competitor that had
created the category.

- Britannia’s products retail in over 2 million outlets (Source: ACNielsen ORG-


MARG, 2003), selling approximately 200 million packs a month.

- With millions of happy consumers every month, Britannia is considered to be one of


the most trusted food brands in India (Source: ET Brand Equity Study, 2003).

- Britannia has also successively made the Forbes List of 200 Best Small Companies
in the world for the years 1999, 2000 and 2002.

 Britannia products are sold in over 2 million outlets, reaching millions of


consumers who buy approximately 2.4 billion packs each year.
 A small army keeps Britannia going- over 100 stock-keeping units, 3,000
employees, over 1,500 authorized whole sellers, 53 depots and 46 factories.
The number of biscuits produced by Britannia in one year would be equivalent
of one pack of 12 biscuits for every two people in the world.
 Britannia has had a long association with cricket and its players. Nearly half
the members of the current Indian Cricket team serve as its brand
ambassadors.
 Launched in 1997, Tiger became the largest selling Britannia biscuit brand in
just 4 months of its launch. It crossed the Rs 1 billion mark in its very first
year and is still going stronger.

27
BRITANNIA’S MILESTONE

1892

A humble beginning is made to manufacture biscuits in a small house in central


Calcutta with an investment of Rs 295.

1897

The Gupta Brothers acquired the business, and moved the operations to Dum Dum, a
suburb of Calcutta, under the name of V.S.Brothers.

1910

Advent of electricity helps mechanize the operations.

1914

V.S Brothers secure an initial order for 100 tons of “services”.

1918

Gupta Brothers take Mr. C.H. Holmes, an English businessman in Calcutta, as a


partner.

The Britannia Biscuit Company limited is registered on March 21, 1918 and the brand
name “Britannia” launched.

1919

Sales turnover was Rs 4, 60,896.

1921

New imported machinery is introduced and Britannia Biscuit Company becomes the
first company to install.

1924

Mumbai factory is set up. Peek Prean, U.K acquired a controlling interest in Britannia
Biscuit Company Limited.

28
1939-44

Sales increased to Rs 16, 27, 202, the business received a big fillip during World War
II service biscuits are supplied in large quantities.

1952

Calcutta factory is relocated from Dum-dum to present site at Taratola road, Delhi
Biscuit Company is acquired.

1954

BBCo acquired the Delhi Biscuit Co and began the manufacture of sliced and
wrapped bread in Delhi.

1966

New Delhi plant is set up at the present site at Lawrence road and Ramp D department
is set in Mumbai factory.

1967

Chennai factory commences production.

1968

Britannia Biscuit Company celebrates golden jubilee.

1971

Seafood’s division is set up.

1973

An integrated processing and freezing plant for seafood was commissioned at Thane.

1975

Public issue- Indian share –holdings distribution fro parry’s

1978

29
Company name changed to Britannia Industries Limited.

1982

Nabisco brand Inc. U.S.A becomes major foreign shareholder.

1983

Sales crossed Rs 100 crores

1986

Soya products trial commences.

1989

The Executive office is moved from Mumbai to Bangalore. B.S.N acquires stake in
BIL through ABIL, U.K

1991

Soya unit at Vidisha divested.

1992

BIL celebrates its platinum jubilee.

1993

Wadia group acquires stake in ABIL U.K and becomes an equal partner with Group
Dan one in BIL.

1994

Sales crossed 10000 tons of biscuits.

1997

New Corporate identify “EAT HEALTHY THINK BETTER” launched. BIL enters
the dairy products market.

1998
30
Sales crossed Rs 10,000 million. (235 MN. Used)

1999

Opened a new category: SNACKING PRODUCTS.

2000

Sales increase by 14.43%, total sale of 1338.10 crores.

2001

Profit of 70.5 crores, an increase of 38.24%.

2004

The creation of a centralized set-up for payables processing, accounting and MIS
systems in the corporate office at Bangalore.

2005

Re-birth of Tiger – “SwasthKhao, Tiger Ban Jao” becomes the popular chant! The
new plant inuttaranchal commissioned ahead of schedule.

2007

Britannia industries formed a joint venture with the KhimjiRamdas Group and
acquired a 70 percent beneficial state in the Dubai-based Strategic Foods International
Co. LLC and 65.4% in the Oman-based Al Sallan Food Industries Co. SAOG.
Britannia launches NutriChoice - the first of its kind of biscuits in India - with no
added sugar.

2009

Britannia takes full control of Daily Bread. Britannia New Zealand Food (BNZF)
became a BIL subsidiary after BIL bought out New Zealand's Fonterra from the
existing joint venture. BNZF was renamed Britannia Dairy Pvt. Ltd. (BDPL).
Britannia became the first Bakery brand in India to remove trans-fats from 99.9% of

31
its products. Wadia Group became the largest shareholder in BIL after acquiring stake
holdings from Group Danone.

2010

Britannia Industries Ltd has appointed Dr. Vijay L. Kelkar as an additional Director
on the Board of the Company with effect from May 28, 2010.

2011

Britannia received the Most Respected Company Award 2011 from Business world.
Bourbon received the Most Popular Confectionery Product Preferred by Youth
(Biscuit) Award.

1. Britannia Bread launched its new range of Health Breads in Delhi in


November. The range consists of Honey & Oats Bread, Multi-Grain Bread,
100% Whole Wheat Bread and Multi-Fiber Bread.

2. Britannia was honored with `Creative HR Practices Award' by Employer


Branding Institute, India.

3. IMC Ramakrishna Bajaj National Quality Award 2011 was awarded to


Britannia Industries Limited.

4. The Modern Trade team of Britannia was honored with Winner-BEST


BAKERY SUPPLIER award for the year 2011-12, at the 1st SPENCER'S
Best Supplier Awards 2012 on 22nd June.

2012

Britannia was awarded the Global Performance Excellence Award (GPEA) by Asia
Pacific Quality Organization (APQO).

2013

'Experience of Health' with Nutrichoice | Britannia brings home the goodness of


golden, sun-kissed wheat with its all new NutriChoice Crackers Range.

2014

32
Chunkies Tie-up with Amazon

An exclusive tie-up with Amazon for the launch of its latest product Good Day
Chunkies, a super-premium chocolate chip cookie.

2015

Britannia Bourbon turns 60

Britannia Bourbon, India's first premium chocolate biscuit completes 60 glorious


years.

2016

1. Cake Biscotti Britannia launches Cake Biscotti, India’s first ever classic
'Bridge' product combining the best of the world of a cake and that of a
cookie.

2. Cutting - edge technology Britannia launched its state of the art R&D Centre
facility in Bidadi, Karnataka.

2017

Enriching our portfolio - Britannia-Chipita JV Entered into a joint venture


agreement with Chipita S.A., a Greek company, for the manufacture and sale of ready
to-eat delicious croissants.

MISSION OF THE COMPANY

“To dominate the food and beverage market in India through a profitable range of
tasty yet healthy products.”

Regarding the basis of setting mission and vision statement, Britannia gives
topmost priority to “customer satisfaction”, followed by quality, market leadership,
increased profit variety, sales turnover and profit maximization.

33
BRITANNIA-THE CORPORATE CITIZEN

Britannia constantly enriches the lives of so many people through its


philanthropic efforts.

Missionaries of Charity:

Support has been consistently provided to the Missionaries of Charity (Mother


Teresa) in Calcutta. A special programmer called “We Care” was run to provide
opportunities to the under privileged. Donations of biscuits, uniforms etc., are
provided regularly.

Spastic’s Society of Karnataka:

Britannia also supports the Spastic’s Society of Karnataka. In its continuous


Endeavour to contribute to society, the company brought forth a unique concept of
redressing its regular stationery and donating the savings made on greeting cards to
this worthy cause.

CORPORATE CULTURE OF BRITANNIA

The Company promotes:

1. High degree of consumer satisfaction.


2. Open, interactive, convivial (lively) and innovative work atmosphere.
3. Result driven at all level but with sense of fairness.
4. Development of employees and continues renewal of skills.

SWOT ANALYSIS

The SWOT analysis of the company refers to the strengths & weaknesses
inherent in the organization & the opportunities & threats faced by them
from the environment, internal as well as external. This analysis is the foundation
stone of the strategic planning process as well as short-term plans needed to attain the
strategic objective of the organization.

34
The analysis has been done in order to have a better understanding of the
organization. The information given by the organization has been used to carry out the
analysis. The strengths, weaknesses, opportunities; threats identified are enumerated
as follows:

STRENGTHS:

1. World’s second largest domestic biscuit manufacturer.


2. The largest bakery company in India.
3. The business structure is divisionalised to achieve a focus at the market.
4. Highly advanced production facilities.
5. High quality product with competitively low prices with proven results.
6. In terms of training needs, the Company deputes its officers and staff regularly
on various training programs.

WEAKNESSES:

1. Very limited product exports.


2. Limited product portfolio.
3. In terms of training needs, the Company does not have systematic training
policies.

OPPORTUNITIES:

1. Vast market for the exports.


2. Ample scope for the product diversification.
3. Vast potential in tapping new sales territories.
4. Scope for entering in the strong rural market.
5. In terms of training needs, the Company can formulate in-house training
programmes for its officers and staff.

THREATS:

1. Severe competition from the existing competitors.


2. Invasion of foreign brands in this segment.
3. Competition from small scale regional players.
4. The Company may lose highly trained staff to its competitors.

35
REVIEW OF LITERATURE:

1. Ajaya Kumar Panda, Swagatika Nanda, (2018) "Working capital financing


and corporate profitability of Indian manufacturing firms", The study finds a
negative relationship between WCF and profitability among firms in chemical,
construction, and consumer goods sectors. Firms in these sectors can finance
larger portion of their working capital requirements through short-term debt
without negatively impacting profitability.

2. Ahmed SU, Mahtab N, Islam N and Abdullah M (2017) studied on impact of


Working Capital Management on Profitability on Textile Companies of
Bangladesh. The findings of the study showed that, there is statistically
significant relationship between working capital management and profitability
of the Bangladeshi textile companies. More specifically, this study revealed
that Current ratio and Current liabilities to total asset has most significant
impact on profitability of textile companies in Bangladesh.

3. ZelealemTadesseTemtime (2016) studied the “Relationship between Working


Capital Management, Policies, and Profitability of Small Manufacturing
Firms.” The findings confirmed that ARP, APP, WCIP, and WCFP are
significant predictors of firm profitability.

4. JyotiMahato and Uday Kumar Jagannathan (2016) examined the Impact of


Working Capital Management on Profitability: Indian Telecom Sector. The
result of correlation analysis shows the ROA has negative relationship with
ICP, CCC and Current ratio while ROA has positive relationship with Debt
ratio and Firm size. Telecom sector is one of the major sectors of India. So, the
aim of this paper is to provide some useful recommendation for the people
responsible for the management of this sector. This study also establishes the
basis for future research in this area of business.

5. Şamiloğlu and Akgün (2016) examined the relationship between working


capital management and profitability for a sample of 120 Turkish
manufacturing firms for a period of 2003 to 2012 and found a significant
negative relationship between account receivable period and return on asset,
return on equity, operating profit margin and net profit margin. Husain and

36
6. Alnefaee (2016) have considered a sample of 18 agriculture and food firms for
a period of 2009 to 2014 and found a negative relationship between gross
operating profit and average payment period, inventory turnover in days and
cash conversion cycle whereas a positive relationship with average collection
period.

7. Pandey and Sabamaithily (2016) found a significant positive relationship


between Return on Investment (ROI) and Current Ratio and Quick Ratio,
whereas there is no significant impact by working capital turnover ratio, fixed
assets turnover ratio, debtors turnover ratio and inventory turnover ratio
among 24 selected cement industries that are listed in Bombay Stock
Exchange for the period of 2003-04 to 2013-14.

8. Poonam Gautam Sharma and Preet Kaur (2015) examine the impact of
working capital management on profitability of Bharti Airtel Telecom
Company. The study period was 2007-08 to 2014-15. The results reveal that
there is significant negative relationship between liquidity and profitability of
the company and it also reveals that quick ratio, inventory turnover ratio,
debtor’s turnover ratio of company shows satisfactory performance and
current ratio of company was found not satisfactory.

9. Kruti A. Patel (2015) studied on impact of working capital management on


profitability of Indian Oil Corporation. The study was based on secondary data
and study period was 2009-10 to 2013-14. Pearson correlation, descriptive
statistics were applied as research methodology. The results show that there is
significant negative correlation between working capital management and net
profit and it also indicates that there is negative relationship between liquidity
and profitability.

10. Maheshwari (2014) studies the Indian steel industries by selecting top 4 Indian
steel industries. The efficient working capital management performs the
crucial role in maintaining proper liquidity, solvency and profitability of the
concern.

11. Joseph Jisha (2014) closely examines the study of working capital
management in Ashok Leyland and points out that the liquidity and

37
profitability position of the company is not satisfactory, and needed to be
strengthened in order to be able to meet its obligations in time.

12. Enqvist et al. (2014) in their paper considered a sample of Finnish listed
companies over the period 1990 to 2008 and found the necessity of investing
in working capital and its efficiency in daily routines for the profitability. The
results show that the impact of efficient cash conversion cycle, inventory
management and accounts receivable on profitability increase during
economic downturn.

13. Madhavi K. (2014) makes an empirical study of the co-relation between


liquidity position and profitability of the paper mills in Andhra Pradesh. It has
been observed that inefficient working capital management makes a negative
impact on profitability and liquidity position of the paper mills

14. L.Moorthy and R.Rajavathana (2013) they found that both the companies had
insignificant relationship with profitability. Although cash conversion cycle of
both the company had positive relationship with profitability but average
collection period and average payment period of both the companies proved to
be in negative relationship with the profitability.

15. Bhagchi, Kamrui (2012) they studied that the impact of working capital
management on profitability. After conduct familiarity tests, Pearson’s
Correlation and panel data regression, it revealed that there is a significant
negative relation between the working capital management and firm
profitability.

16. Kulkanyanapompech (2012) he shows a negative relationship between the


gross operating profits and inventory conversion period and receivable
collection period by limitations of the cash conversion cycle

17. Dr. Ashok Kumar Panigrahi, (2012) analyses the impact of working capital
management on profitability of ACC Cement Company. The study is based on
secondary data, data are collected from the websites money control as well
company websites and study periods are for 10 years i.e. 1999-2000 to 2009-
2010. The research methodology used in this paper is correlations coefficient,

38
multiple correlation analysis and multiple regression analysis. In this paper
few variables show a strong and positive correlation with the profit whereas
some others do not have. The results show that there is moderate relationship
between the efficiency of working capital and the profitability.

18. Sheela Christina (2011) carried out the study on Financial Performance of
Wheels India Limited-Chennai. The study had an Analytical type of research
design supplemented by secondary data collection method. For this purpose,
the researcher took the past five years’ data and also checked out for the
validity and reliability before conducting the study. The researcher used the
financial tools, namely ratio analysis, comparative balance sheet and DuPont
analysis and also statistical tools such as trend analysis and correlation.
Profitability ratios indicated that there was a decrease in the profit level,
utilization of fixed assets and working capital in the last financial year. Thus
the company could take necessary steps to improve sales and profit. Finally,
the study revealed that the financial performance was satisfactory.

19. Prasanta Paul (2011) reported that Financial Performance Evaluation-A


Comparative Study of Some Selected NBFCs. In this study, five listed NBFCs
have been considered for analyzing comparative financial performance.
Different statistical tools like, Arithmetic mean, Standard Deviation,
Coefficient of Variance, Correlation and Analysis of Variance have been used
extensively. Arithmetic Mean (AM) is an ideal measure of central tendency,
which is rigidly defined, easy to calculate, based on all observations and
affected least by fluctuations of sampling, has been applied in this study. It has
been used to get a stable average and it is easy to understand the results of the
study.

20. AK Sharma & Satish Kumar (2011), “Effect of Working Capital Management
on Firm Profitability: Empirical Evidence from India” studied the effects of
Working Capital on profitability.

21. Caballero et al. (2011) have analyzed a concave relationship between working
capital and firm profitability of small and medium-sized enterprises (SMEs)
that indicated that for maximum profitability an optimum working capital

39
must be maintained and any deviation from the optimal cycle should be
avoided.

22. Yimin Zhang and Tianmu Wang (2010) have considered the cost structure,
profitability and productivity of the Chinese textile industry and estimated the
impacts of RMB appreciation on this industry for 1999–2006. It was found
that the industry had suffered from very low profit margins and returns on
capital. Because input prices have been increasing, particularly since 2001,
generating profits had become more difficult for the industry. Nevertheless,
the industry achieved substantial productivity growth during the period
examined. Although at an inadequate level, the profitability of the industry did
show some signs of improvement. As long as this trend continued, the industry
could have obtained a decent level of profitability. Since 2005, however, the
industry has faced a new challenge: the appreciation of the RMB. Based on
2006 data, it estimated the maximum rate of RMB appreciation that the
industry would be able to sustain to be approximately 5 percent a year

23. The study carried out by Mathuva (2010) presented a positive relationship
between working capital management and profitability.

24. Niranjana Devi. K (Oct 2010) This study looked at working dimension of the
companies. The result of the study with respect to the four objectives, namely
the types of Working Capital Policies, the factor that determines the Working
Capital, the structure and utility of Working Capital and the impact of
Working Capital on profitability were examined.

25. RiedEdwardj and Srinivasan Suraj (2010) have made an investigation as to


whether the managers’ presentation of special items within the financial
statements reflects the economic performance or opportunism. Specifically,
special items were presented as a separate line item on the income statement
(income statement presentation) to those aggregated within another line item
with disclosure only in the footnotes (footnote presentation). The study was
motivated by an interest to setting standards in performance reporting and
financial statement presentation, as well as prior research investigating
managers’ presentation choices in other contexts. Empirical results reveal that

40
special items receiving an income statement presentation are less persistent,
relative to those receiving footnote presentations. These results are consistent
across numerous alternative specifications. The overall findings are consistent
with managers using the income statement versus footnote presentation to
assist users in identifying those special items that are most likely to differ from
other components of earnings - that is, for informational, as opposed to
opportunistic and motivations.

26. Rao and Rao & Ramachandran (2010) this study is aimed at analyzing the
trends and parameters of efficiency of WC utilization in respect of size of
firms of cotton textiles sector in Indian on the application of three indices viz.,
Performance Index (PI, utilization Index(UI)and efficiency Index(EI). For the
purpose of analysis, the selected firms are classified into three size categories
viz “Small”. Medium” and “Large” based on average assets size over the
study period. The study reveals that Linear Growth Rate(LGR) of PI, UI and
EI in respect of WC efficiency for small size firms is significant while that of
for medium size firms, the trend of UI alone is significant. The trend of PI, UI
and EI for large size firms is significant. On the whole, despite the positive
growth in PI, the WCM efficiency of overall firms is found to be not
encouraging because the constant factors are declining, which shows that the
fixed components of WC are more than the varying components of the WC.

27. Chatterjee (2010) studied the relationship between working capital


management practices and the profitability of listed firms on the London Stock
Exchange. Using a sample of 30 UK firms and employing the Pearson
correlation data analysis technique, the study confirms a significantly negative
association between profitability and working capital management variables.
Specifically, the study observes a significantly negative relationship between
profitability and liquidity and also significantly negative relationship between
total debt and profitability. The study further finds a significantly positive
association between profitability and firm size. The implication is that;
profitability of firms increases when they improve upon their working capital
management. Particularly, holding highly liquid assets is important as it
significantly enhances firms’ profitability. This is because assets can easily

41
and quickly be sold off and the revenue re-invested in other relatively higher
short-term assets and coupled with the fact that it also prevents court actions
and its associated cost emanating from the firm’s inability to pay its short-term
creditors. The findings further imply that a high level of debt use is unhealthy
for the financial success of the firm whereas increases in sales encourage firm
profitability.

42
DATA ANALYSIS:

Table 1: Current ratios of Nestle and Britannia for 2012-2016

YEAR NESTLE BRITANNIA

2016 0.56 1.06

2015 0.5 1.19

2014 0.53 0.9

2013 0.65 0.82

2012 0.54 0.7

0.556 0.934
Mean

0.056833 0.193856
Stn Dev

CV 0.102217626 0.207554604

43
Fig 1: Current ratios of Nestle and Britannia
for 2012-2016.
1.4

1.2

NESTLE
0.8
BRITANNIA

0.6

0.4

0.2

0
2012 2013 2014 2015 2016

From the above analysis, it can be seen that in 2012 the present proportions were 0.55
times in nestle India ltd. It was diminishing the following year. Whereas Britannia ltd
company overall performance is better compared to Nestle.

Therefore, it is observed that both organizations are not performing great in


regard of current proportion as perfect current proportion is 2:1 and deviation from
the perfect proportion is more for both the organizations.

44
Table 2: Quick ratios of Nestle and Britannia for 2012-2016

YEAR NESTLE BRITANNIA

2016 0.31 0.77

2015 0.24 0.9

2014 0.25 0.51

2013 0.38 0.44

2012 0.21 0.36

Mean 0.278 0.596

Std Dev 0.067601775 0.229194241

CV 0.243171853 0.384554095

45
Fig 2: Quick ratios of Nestle and Britannia
for 2012-2016
1

0.9

0.8

0.7

0.6
NESTLE
BRITANNIA
0.5

0.4

0.3

0.2

0.1

0
2012 2013 2014 2015 2016

From the above analysis, we can view that in 2012, the quick ratio were 0.21 times in
nestle India ltd. It was fluctuating year to year on the other hand Britannia ltd
company in 2012 is 0.36, it is also fluctuating from year to year. Both companies are
showing fluctuating results for quick ratio and that is clearly represented in the figure.

The mean value of Nestle is 0.278 and standard deviation is 0.067601775. It means
that the value of quick ratio can deviate from the mean to both sides by
0.067601775. The mean value of Britannia is 0.596 and standard deviation is
0.229194241. It means that the value of quick ratio can deviate from the mean to
both sides by 0.229194241.

46
Table 3: Debt to equity ratio Nestle and Britannia for 2012-2016

YEAR NESTLE BRITANNIA

2016 0.01 0.01

2015 0.01 0.01

2014 0.01 0.01

2013 0.5 0.31

2012 0.58 0.05

Mean 0.222 0.078

Sd 0.291667619 0.130843418

CV 1.313818104 1.677479716

Min 0.01 0.01

Max 0.58 0.31

47
Fig 3: Debt to Equity Ratios of Nestle and
Britannia for 2012-2016
0.7

0.6

0.5

0.4 NESTLE
BRITANNIA

0.3

0.2

0.1

0
2012 2013 2014 2015 2016

Ideal ratio for debt equity ratio is 2:1. For nestle in the year 2012 is 0.58 and it is
continuously decreasing till 2016. For Britannia in the year 2012 is 0.05 and it is
fluctuating for the rest of the years till 2016. The overall situation for both the
companies is not good as there is great deviation from the ideal ratio.

The mean value of debt to equity of Nestle is 0.222 and standard deviation is
0.291667619. It means that value if debt equity can deviate from mean to both sides
by 0.291667619. The maximum value for debt equity is 0.58 while the minimum is
0.58. The mean value of debt to equity of Britannia is 0.078 and standard deviation is
0.130843418. It means that value if debt equity can deviate from mean to both sides
by 0.130843418.

48
Table 4: Stock / Inventory Turnover Ratio of Nestle and Britannia for 2012-2016

YEAR NESTLE BRITANNIA

2016 10.13 21.29

2015 10.33 21.24

2014 12.06 17.19

2013 12.8 16.94

2012 11.55 13.17

Mean 11.374 17.966

Sd 1.13715874 3.406777069

CV 0.099978788 0.189623571

Min 10.13 13.17

Max 12.8 21.29

49
25
Fig 4: Stock / Inventory Turnover Ratio of
Nestle and Britannia for 2012-2016

20

15

NESTLE
BRITANNIA

10

0
2012 2013 2014 2015 2016

From the above analysis we can observe that in 2012 ratio is 11.55 for nestle and it is
fluctuating between 10 to 12 for rest of the years till 2016. For Britannia it is
continuously increasing from 2012 till 2015.This ratio should not be so high or so low
it should be just an average number. The overall situation for both the companies is
OK.

50
Table 5: Debtor / Receivable Turnover Ratio Nestle and Britannia for 2012-2016

YEAR NESTLE BRITANNIA

2016 104.61 89.46

2015 92.11 115.12

2014 107.49 96.44

2013 105.49 86.89

2012 82.12 90.94

Mean 98.364 95.77

Sd 10.90935745 11.36739636

CV 0.11090803 0.118694752

Min 82.12 86.89

Max 107.49 115.12

51
Fig 5: Debtor / Receivable Turnover Ratio
Nestle and Britannia for 2012-2016
140

120

100

80 NESTLE
BRITANNIA

60

40

20

0
2012 2013 2014 2015 2016

The above ratio depicts how rapidly credit sales are converted into cash. The higher
ratio is better for the company. For Nestle and Britannia both ratio is fluctuating
between 80 to120. Overall situation for both the companies is good.

52
Table 6: Gross Profit Ratio Nestle and Britannia for 2012-2016

YEARS NESTLE BRITANNIA

2016 14.72 13.14

2015 14.77 9.11

2014 17.19 8.45

2013 17.77 5.59

2012 18.57 4.66

Mean 16.604 8.19

Sd 1.766431431 3.34056133

CV 0.106385897 0.407882946

MIN 14.72 4.66

MAX 18.57 13.14

53
fig no.6: Gross Profit Ratio Nestle and Britannia for
2012-2016
20

18

16

14

12

10 NESTLE
BRITANNIA
8

0
2012 2013 2014 2015 2016

There is no ideal ratio but higher the ratio better it is. For Nestle in the year 2012 is
18.57 and from then it is continuously decreasing till 2016 on the other hand for
Britannia it is continuously increasing till 2016. For nestle the situation is not in favor
but for Britannia the situation is good. When comparing both the companies Nestle is
in better position as compared to Britannia.

54
Table 7: Operating Profit Ratio Nestle and Britannia for 2012-2016

YEAR NESTLE BRITANNIA

2016 18.55 14.24

2015 19.01 10.75

2014 20.61 9.45

2013 21.39 6.61

2012 21.9 5.61

Mean 20.292 9.332

Sd 1.463769107 3.441499673

CV 0.157961663 0.02546896

Min 18.55 5.61

Max 21.9 14.24

55
Fig 7: Operating Profit Ratios of Nestle and
Britannia for 2012-2016
25

20

15 NESTLE
RATIOS

BRITANNIA

10

0
2012 2013 2014 2015 2016

Nestle in the year 2012 is 21.9 and from then it is continuously fluctuating till 2016
on the other hand for Britannia it is continuously increasing till 2016. For nestle the
situation is not in favor as it is decreasing but for Britannia the situation is good as
graph is increasing but if we compare both the companies Nestle is better than
Britannia.

56
Table 8: Net Profit Ratios of Nestle and Britannia for 2012-2016

YEAR NESTLE BRITANNIA

2016 10.04 9.42

2015 6.88 8.67

2014 12.02 5.86

2013 12.27 4.16

2012 12.81 3.75

Mean 10.804 6.372

Sd 2.430705659 2.578811742

CV 0.1579532316 0.014868962

Min 6.88 3.75

Max 12.81 9.42

57
Fig 8: Net Profit Ratios of Nestle and
Britannia for 2012-2016
14

12

10

NESTLE
8
BRITANNIA

0
2012 2013 2014 2015 2016

There is no ideal ratio but higher the ratios better it is. For Nestle in the year 2012 is
12.81 and from then it is decreasing continuously till 2016 on the other hand for
Britannia it is continuously increasing till 2016. For nestle the situation is not in favor
but for Britannia the situation is good. When comparing both the companies Nestle is
in better position as compared to Britannia. There is no much difference in the net
profit ratio of year 2012 and year 2013 as the net profit and the sale has increased in
the same proportion so there is not much difference in the net profit ratio of the
company.

58
TABLE NO. 9. Correlation matrix of nestle India Ltd.

WC CR QR OPR NPR ROA ROCE

WC 1

CR 0.992619 1

QR 0.977724 0.994926 1

OPR -0.81954 -0.77008 0.75572 1

NPR -0.49369 -0.47141 0.49897 0.813904 1

ROA -0.65731 -0.65108 0.67865 0.828967 0.962232 1

ROCE -0.65052 -0.64858 0.67855 0.807061 0.954386 0.999052 1

INTERPRETATION:

A measure used to represent how strongly two random variables are related
known as correlation.

The working capital is negatively correlated with operating profit ratio, net
profit ratio, return on assets and return on capital employed. It indicates that if
working capital is increased it may have adverse effect on firms’ profitability.

TABLE NO. 10

59
Correlation matrix of Britannia Ltd.

WC CR QR OPR NPR ROA ROCE

WC 1

CR 0.999587 1

QR 0.972525 0.974274 1

OPR 0.921462 0.927474 0.961485 1

NPR 0.779837 0.788268 0.843014 0.955999 1

ROA 0.478919 0.495252 0.652566 0.685519 0.674663 1

ROCE -0.15132 -0.13506 0.050941 0.05046 0.064312 0.761043 1

INTERPRETATION:

As per the above correlation table, there exists a positive relationship between
working capital and other variables like current ratio, quick ratio, operating ratio, net
profit ratio and return on assets except on ROCE (return on capital employed)

Which implies that as ROCE and working capital are negatively related for Britannia
ltd.

FINDINGS:

60
After the analysis of various components and trends of NESTLE AND
BRITANNIA, it is found that:
1. Current ratio of Britannia increased till the year 2015 and then in the
year 2016 it dropped by 0.13 and the ratios of Nestle is fluctuating.
2. Both companies are showing fluctuating results for quick ratio.
3. For nestle debt to equity in the year 2012 is 0.58 and it is continuously
decreasing till 2016. For Britannia in the year 2012 is 0.05 and it is
fluctuating for the rest of the years till 2016. The overall situation for
both the companies is not good as there is great deviation from the
ideal ratio (2:1)
4. The inventory ratio of both the companies is good.
5. For Nestle and Britannia both the debtor turnover ratio is fluctuating
between 80 to120. Overall situation for both the companies are
performing well.
6. Analyzing individually, nestle gross profit is decreasing which is not
good and for Britannia it is increasing. But analyzing collectively,
nestle is performing better than Britannia.
7. For Nestle in the year 2012 is 12.81 and from then it is decreasing
continuously till 2016 on the other hand for Britannia it is continuously
increasing.
8. As per the correlation table of NESTLE, there exists a negative
relationship between working capital and other variables.
9. As per the correlation table of BRITANNIA, there exists a negative
relationship between working capital and ROCE.

61
CONCLUSION:

The corporate profitability reflects the ability to make profit from the business
activity. It is an indicator of management efficiency to utilize the available resources.
The corporate profitability can be measured with the help of profitability ratio
(relative measures) such as gross profit ratio, net profit ratio, operating profit ratio,
return on total assets, return on capital employed etc.

Most of the analysts prefer ROCE/ROI and ROTA to measure the corporate
profitability. There are several factors which affect the corporate profitability;
working capital management is one of them. WCM deals with the management of
working capital. Working capital is the amount which is required to meet the expenses
of day-to-day operations. It is just like the heart of the business. The efficiency of
working capital is measured through current and liquid ratio, inventory turnover ratio.
From the study it has been found out that NESTLE and BRITANNIA corporate
profitability and working capital component has negative relationship.

62
RECOMMENDATIONS

On basis of the above analysis we may further conclude that these results can be
further strengthened if the firms manage their working capital in more efficient ways.
Management of working capital means management of current assets and current
liabilities and financing these current assets. If these firms properly manage their cash,
accounts receivables and inventories in a proper way, this will ultimately increase
profitability of these companies.

1. Both the companies have to maintain its current ratios accurately


because 2:1 is the standard and deviations from the perfect proportion
is more for both the companies.
2. The overall situation of both the companies for debt equity ratio is not
good as there is great deviation from the ideal ratio (2:1) Nestle has to
take care a lot because from the year 2012 the debt equity ratio is
continuously decreasing.
3. The inventory ratio of both the companies is good. Both the companies
should try to improve its inventory ratio
4. Debtor turnover ratio of both the companies are performing well and it
has to be maintained further
5. Improve accounts receivables collections and accounts payable of the
companies to improve the working capital.

63
BIBLOGRAPHY:

JOURNAL PAPERS:

 Ajaya Kumar Panda, Swagatika Nanda, (2018) "Working capital financing


and corporate profitability of Indian manufacturing firms", Management
Decision, Vol. 56 Issue: 2, pp.441-457

 Ahmed SU, Mahtab N, Islam N and Abdullah M “Impact of Working Capital


Management on Profitability: A Study on Textile Companies of Bangladesh” J
Bus Fin Aff 2017, Vol 6(4): 292 Issue: 1 pp.321-2

 Shaista Wasiuzzaman “Working Capital and Profitability in Manufacturing


Firms in Malaysia: An Empirical Study” Vol 16, Issue 4, 2016

 ZelealemTadesseTemtime “Relationship between Working Capital


Management, Policies, and Profitability of Small Manufacturing Firms.” Vol
1, 2016. Issue5. PP 3

 JyotiMahato and Uday Kumar Jagannathan “A Study on Impact of Working


Capital Management on Profitability: Telecom Sector of India” 2016. Issue 1
PP20

 Imperial Journal of Interdisciplinary Research (IJIR) Vol-2, Issue-3 , 2016.


Mrs. Poonam Gautam Sharma1 & Ms. Risham Preet Kaur “Working Capital
Management and Its Impact on Profitability: A Case Study of Bharti Airtel
Telecom Company” Issue:3 PP 221

 RESEARCH HUB – International Multidisciplinary Research Journal


(RHIMRJ) Research Paper Volume-2, Issue-5, May-2015.“ Impact of
Working Capital Management on Profitability in Indian Petroleum Industry
with special reference to Indian Oil Corporation” by Prof. Kruti A. Patel.

 Dr. Monika Maheshwari “Measuring Efficiency and Performance of Selected


Indian Steel Companies in the Context of Working Capital Management”
Pacific Business Review International Volume 6, Issue 11, pp 458 May 2014

64
 Joseph Jisha, Impact of Working Capital Management on Firm‟s Profitability
and Liquidity: An Empirical Study of Ashok Leyland Ltd., International
Journal of Research in Commerce and Management, Vol. 5, No. 2

 B Bagchi & B Khamrui, “Relationship between Working Capital Management


and Profitability: A Study of Selected FMCG Companies in India”, Business
and Economics Journal, Vol. i 2012: BEJ-60, at
http://astonjoumals.eom/manuscripts/Vol2012/BEJ-60_V6l20i2.pdf

 L. Ganesamoorthy & R. Rajavathana, “Effects of Working Capital


Management on Profitability of.: Select Automobile Companies in India”,
Volume : 2 | Issue : 2 | pp 56 Feb 2013

 AK Sharma & Satish Kumar, “Effect of Working Capital Management on


Firm Profitability: Empirical Evidence from India” Global Business Review
February 2011 vol. 12 issue: 2 pp 35

 Prasanta Paul “Financial Performance Evaluation - A Comparative Study of


Some Selected NBFCs” Volume 5, Issue 5, pp- 674 May 2011

 Yimin Zhang Tianmu Wang “Profitability and Productivity of the Chinese


Textile Industry” Volume 18, Issue 5 PP 298

 Dr.M. Thyigarajan and Mr J.Uday Kumar (2015), “Profitability analysis of


select aluminium companies in India” Indian journals of Applied Research vol
No 5 issue 4 April 2015 pp: 807 to 809.

 Niranjana Devi.K. (Oct 2010) “Working Capital Management in Indian


Corporate Sector: A Study on Policies, Structure and Efficiency” Issue: 4 pp
75

 Ried Edwardj and Srinivasan Suraj, (Spring 2010), “Signaling Firm


performance through financial Statement Presentation, An Analysis Using
Special Items”, Contemporary Accounting Research, Vol. 27, Issue 1

65
 Rao & et.al “Financial management Focus on working capital utilization in the
Indian cotton textiles Industry: Methodological analysis” (Journal of Financial
management and Analysis) Issue 3 PP- 76

 Sheela S. Christina, (Feb 2011), “A Study on Financial Performance of


Wheels India Limited-Chennai. Interdisciplinary”, Journal of Contemporary
Research in Business, Vol. 2, Issue 10. Pp 543

 Şamiloğlu, Famil; Akgün, Ali İhsan. Business & Economics Research Journal.
2016, Vol. 7 Issue 2, p1-14. 14p.

 Pandey, N. S.; Sabamaithily, S. SCMS Journal of Indian Management. Apr-


Jun2016, Vol. 13 Issue 2, p81-95. 15p.

66
BOOKS

 Hrishikesh Bhattacharya, working capital management - Strategies and techniques,


Nov. 2005, published by Prentice Hall India

 Financial Management – I.M Pandey

 RP Rustagi’s ― Financial Management

WEBSITES

 Nestle India Private Limited, retrieved from: https://www.nestle.in/


 Britannia Limited is retrieved from
https://en.wikipedia.org/wiki/Britannia_Industries
 Britannia Limited information is retrieved from britannia.co.in
 www.moneycontrol.com › Markets › Share/Stock Price › Food Processing
 PROJECT ON RATION ANALYSIS (Published on Feb 2, 2014) is retrieved
from https://www.slideshare.net/umerkhalidkhokhar/nestle
 Financial ratios analysis project at Nestle and
Engro Foods (Published on Sep 24, 2013)
etrieved from
https://www.slideshare.net/raboz/financial-
ratios-analysis-project-26508658
 www.sapub.org/global/showpaperpdf.aspx?doi=10.5923/j.ijfa.20140306.04
 A Comparative Study on the Impact of Working Capital Management on
Firms’ Liquidity & Profitability of Selected It Companies (Jan 05, 2017)
retrieved from https://www.scribd.com/.../A-Comparative-Study-on-the-
Impact-of-Working-Capital
 www.wseas.org/multimedia/journals/economics/2015/a545807-377.pdf
 The Impact of Working Capital Management on Profitability Comparative
analysis between Indian Industries (published in oct 2016)
https://www.amrita.edu/.../the-impact-of-working-capital-management-on-
profitability

67
 Project Report on Financial Analysis of Nestle India Limited Project (May 07,
2013) retrieved from https://www.scribd.com/doc/139925534/Project-Report-
on-Financial-Analysis-of-Nestle-India-Limited-Project
 The Relationship Between Working Capital Management And Financial
Performance Of Energy And Petroleum Companies Listed At The Nairobi
Securities Exchange (OCTOBER, 2014)
http://chss.uonbi.ac.ke/sites/default/files/chss/PURITY%20MUGO%20FINA
L%20MBA%20PROJECT.pdf

68

Vous aimerez peut-être aussi