Académique Documents
Professionnel Documents
Culture Documents
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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.
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.
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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.
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
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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.
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.
Objectives:
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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. Benefits in Purchasing
2. Benefits in Production
3. Benefits in Work in Process
4. Benefits in Sales
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.
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ACCOUNTS RECEIVABLE PERIOD:
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.
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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:
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,
CURRENT RATIO:
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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.
Significance
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
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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
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:
Gross profit margin measures the cost of production. The formula is:
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:
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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.
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
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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.
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METHODOLOGY:
OBJECTIVE:
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.
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SAMPLE:
Financial data of Nestle and Britannia from the year 2012-2016 are used.
STATISTICAL TOOLS:
LIMITATIONS:
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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$130 Billion (various sources) and accounts for 30% to 35% of the total
food market.
1. Dairy – milk, milk powder, ice cream, butter, cheese and ghee
2. Fruits & Vegetables –Slices, Pulps, Juices, Concentrates, Beverages, Potato
wafers/ chips etc.,
3. Grains & Cereals – Flour, Bakery products, Corn flakes, Starch, Glucose,
Malted foods, Vermicelli, Beer and malt extracts
4. Consumer goods, which includes snack food, biscuits, ready-to-eat foods,
alcoholic and non-alcoholic beverages.
Food processing industry has been performing better than agriculture and
manufacturing. FY13 growth was lower at 3% due to lower growth in agriculture
and manufacturing; however, the industry has performed marginally better than
both those sectors. The new developments include establishment of cold storage
facilities, food parks, packaging centers and irradiation centers.
The fast moving consumer goods (FMCG) segment is the fourth largest sector in the
Indian economy. The market size of FMCG in India is estimated to grow from US$
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
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The top ten India FMCG brands are:
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.
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Product innovation
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.
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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.
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COMPANY PROFILE:
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
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.
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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.
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
The following are some of the strategies used by Nestle for market expansion:
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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.
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.
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
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will enable the Nestlé Group to maintain its competitive advantage in the increasingly
complex environments of the future.
Future plans
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.
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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.
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:
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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
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BRITANNIA:
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
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operates with 13 factories and 4 franchisees selling close to 1 MN loaves daily across
more than 100 cities and towns of India.
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.
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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 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.
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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 has also successively made the Forbes List of 200 Best Small Companies
in the world for the years 1999, 2000 and 2002.
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BRITANNIA’S MILESTONE
1892
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
1914
1918
The Britannia Biscuit Company limited is registered on March 21, 1918 and the brand
name “Britannia” launched.
1919
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.
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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
1968
1971
1973
An integrated processing and freezing plant for seafood was commissioned at Thane.
1975
1978
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Company name changed to Britannia Industries Limited.
1982
1983
1986
1989
The Executive office is moved from Mumbai to Bangalore. B.S.N acquires stake in
BIL through ABIL, U.K
1991
1992
1993
Wadia group acquires stake in ABIL U.K and becomes an equal partner with Group
Dan one in BIL.
1994
1997
New Corporate identify “EAT HEALTHY THINK BETTER” launched. BIL enters
the dairy products market.
1998
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Sales crossed Rs 10,000 million. (235 MN. Used)
1999
2000
2001
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
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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.
2012
Britannia was awarded the Global Performance Excellence Award (GPEA) by Asia
Pacific Quality Organization (APQO).
2013
2014
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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
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
“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.
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BRITANNIA-THE CORPORATE CITIZEN
Missionaries of Charity:
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.
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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:
WEAKNESSES:
OPPORTUNITIES:
THREATS:
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REVIEW OF LITERATURE:
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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.
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.
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
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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.
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.
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,
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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.
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
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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.
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.
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:
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.
44
Table 2: Quick ratios of Nestle and Britannia for 2012-2016
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
Sd 0.291667619 0.130843418
CV 1.313818104 1.677479716
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
Sd 1.13715874 3.406777069
CV 0.099978788 0.189623571
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
Sd 10.90935745 11.36739636
CV 0.11090803 0.118694752
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
Sd 1.766431431 3.34056133
CV 0.106385897 0.407882946
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
Sd 1.463769107 3.441499673
CV 0.157961663 0.02546896
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
Sd 2.430705659 2.578811742
CV 0.1579532316 0.014868962
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 1
CR 0.992619 1
QR 0.977724 0.994926 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 1
CR 0.999587 1
QR 0.972525 0.974274 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.
63
BIBLOGRAPHY:
JOURNAL PAPERS:
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
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
Şamiloğlu, Famil; Akgün, Ali İhsan. Business & Economics Research Journal.
2016, Vol. 7 Issue 2, p1-14. 14p.
66
BOOKS
WEBSITES
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
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