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Project Report

Working Capital Management Undertaken At Dabur India Limited

Submitted In The Partial Fulfillment For The Award Of The Degree Of

MASTER O !USI"ESS ADMI"ISTRATIO" Submitted By :


Monika S#arma M!A $ inal%

Under the supervision and guidance of:


Dr& Ur'a(#i S#arma )ro*e+t ,uide

Session 2004 - 2006


TECNIA INSTITUTE OF ADVANCED STUDIES (Approved By AICTE, Govt Of India & Affiliated to GGS Indraprastha University, Delhi) -. )S) In(titutional Area.Mad#uban C#o/k. Ro#ini. Del#i 0 112 234.

!""#$%&&&"$", "$$, "$', "$( )a* # !"" $%&&&"$!, E#+ail info,tiasindia-or. /e0site 111-tiasindia-or.

TABLE OF CONTENTS
Acknowledgement Abstract Objectives Research methodology
5 7 8 9 9 9 9 !$ !% %* %5 %/ %7 %8 '$ '! '' '*

Sources and methods Limitations Sco e

!" #ntroduction %" Overview o& industry '" (om any )ro&ile '"! '"% '"' '"* '"5 '"/ '"7 '"8 Over +undred ,ears O& (aring -ounding .houghts (om any0s +istory 1abur At A 2lance 1abur0s 3ajor S450s 1abur0s (ore 6alues 1abur 7orld 7ide )roducts

'"9

Re engineering &or 6alue (reation


2

*$

'"!$ 1e merging &or 6alue (reation *"7orking ca ital management *"! #ntroduction to 7orking (a ital *"% (lassi&ication o& 7orking (a ital *"' -actors 1etermining 7orking (a ital Re8uirements *"* 7orking (a ital (ycle *"5 -inancing O& 7orking (a ital *"/ Sources O& 7orking (a ital *"7 7orking (a ital Analysis *"8 7orking (a ital (om arisons *"9 7orking (a ital 2ra hs *"!$ 3easurement o& 7orking (a ital 9&&iciency 5"Analysis and #nter retation 5"! Ratio analysis 5"% #nter retation o& Ratios 5"' (lassi&ication o& ratios 5"* Analysis /" (onclusion 7" A endices

*! *% *' *8 5$ 5% 5* 55 5/ /$ /! /7 /9 7$ 7% 7' 7* 9! 9* !$$

8" 4ibliogra hy

ACKNOWLEDGEMENT
:2ratitude is a heart0s memory0 and utting the &eelings o& the heart into

words; is an art" .hose who e<cel in this art are ultimately success&ul" 1etermination; hard work; and atience are the key to success" (om leting a roject o& this magnitude would not have been encouragement = su ossible without the

ort o& many eo le" At this oint o& time # would like to

acknowledge all those who have made a major contribution in its develo ment" # &eel great leasure in e< ressing my gratitude to my (om any 2uide Mr. P.K. Goyal - Mana er F!nance " Acco#nt$ and my -aculty 2uide Mr. Satya Ac%arya on whose guidance; comments = suggestions; # heavily relied" .hey entertained all the 8ueries amidst their hectic schedule" # also e< ress my sincere regards to all the e<ecutive = sta&& members o& -inance = other de artments o& the com any who immensely coo erated in com letion o& my roject re ort" Lastly; # would like to thank the 2od Almighty; my &amily members; my &aculty members and all those le&t unknowingly without whom the com letion o& this roject would not have been ossible"

&S'()AN( S(NG'*

Cert!+!cate o+ Co,plet!on An- Or! !nal!ty O+ Wor.

.his is to certi&y that M!$$ S'()AN( S(NG' has accom lished the roject titled /WORK(NG guidance and su ervision" CAP(TAL MANAGEMENT01 under my

.his

roject is being submitted by her in the o& PGDBM )rogram o&

artial &ul&illment o& (NST(T3E OF

re8uirements

2AGAN

MANAGEMENT ST3D(ES- NEW DEL'(. She anywhere else &or the award o& any degree or di loma has not submitted this work" All sources o& in&ormation and hel have been duly mentioned and acknowledged"

Mr.P.K.Goyal
&Project #!-e*

ABSTRACT
.his roject discusses about the 7orking (a ital 3anagement o& 1abur #ndia Limited" A good way to judge a com any>s cash &low ros ects is to look at its 7orking (a ital 3anagement ?7(3@" (ash is the li&eline o& a com any" #& this li&eline deteriorates; so does the com any>s ability to &und o erations; reinvest; and meet ca ital re8uirements and ayments" 5nderstanding A (om any0s cash &low health is essential to make investment decisions" .he roject in the initial stage began with the research o& the &inancials o& 1abur #ndia Limited through the Annual Re orts and the o&&icial website o& the com any www"dabur"com" 4asically the ur ose &or the research was to understand as to what e<actly is working ca ital; why do com anies re8uire working ca ital; what is the ideal ratio o& working ca ital to be maintained by the (om any; etc" A&ter the research data was collected which was to be analyAed and com ared with the data o& other com anies ?+industan Lever Ltd"; (adbury #ndia Ltd"; Bestle #ndia Ltd"; 4ritannia #ndustries and 3arico Ltd"@ to see how well the com any is handling and managing its &inances" .he collected data was sorted out as er the re8uirements o& the roject" Out o& the entire &inancials; the )ro&it and Loss Accounts; 4alance Sheets and .he (ash -low Statements were the most im ortant as &or calculating the working ca ital and the ratios; as accurate data was available in them" .he data till the year %$$*C%$$5 has been analyAed and the working ca ital and ratios &or Si< major -3(2 com anies that areD 1abur #ndia Ltd";

+industan Lever Ltd"; (adbury #ndia Ltd"; Bestle #ndia Ltd"; 4ritannia #ndustries and 3arico Ltd" have been com ared"

OB2ECT()ES
.o understand the conce t o& 7orking (a ital"
.o understand the trend e<hibited by the working ca ital over the eriod" .o analyAe the overall shortCterm &und re8uirements o& the (om any" .o analyAe the current working mechanism o& Sources and #nvestments o& &unds in the (om any" .o understand the need and im ortance o& working ca ital &inance in an organiAation" .o study the &inancing attern o& working ca ital that revails in DAB3R (ND(A LTD. .o re are a re ort on (om arative study o& 1abur vs" the other to ranked -3(2 com anies"

RESEARC' MET'ODOLOG4
SO3RCES AND MET'ODS5 .he &ollowing sources have been sought &or the re aration o& this re ortD

Pr!,ary $o#rce$ such as current annual re orts; books on &inancial Secon-ary $o#rce$ like revious years annual re orts; re orts on working
(a ital &or research; analysis and com arison o& the data gathered" L(M(TAT(ONS5 .he &ollowing limitations have been &aced in this ossible e&&orts made to make the re ort accurate"

management by various authors and business magaAines such as 4usiness 7orld; 4usiness .oday etc"

roject in s ite o& all

.he &inancial data o& di&&erent com anies is available &or &inancial years that vary; such asE some &irms have their accounting year &rom Fanuary to 1ecember while some others have it &rom 3arch to A ril" +ence the com arison may not be &ully accurate" .he latest &inancial data o& &ew &irms could not be re orted; as their #nternet websites have not been u dated" +ence &or some com anies the data was available &or revious year but &or some it was available &or year roceeding revious year"

SCOPE5 3y roject will concentrate to &ind out the o erational &easibility o& &utures and the &inancial &easibility o erations".he accom lishment o& this roject will lead to an on hand e< erience o& the workings o& the organiAation" .he

ractical training shall rovide a lat&orm to understand the a lications o& the theoretical as ects and the roblems that may arise in the organiAation thus enhancing my decisionCmaking ability"

C'APTER-6

#B.RO15(.#OB
9

.his roject deals with the 7orking (a ital 3anagement o& 1abur #ndia Limited" 1abur #ndia Limited is the -ourth Largest -3(2 (om any" .he basic meaning o& 7orking (a ital in a sim le language is (5RR9B. ASS9.S less (5RR9B. L#A4#L#.#9S" (ash is the li&eline o& every business and hence working ca ital management lays an im ortant role in &unctioning o& a business" 7orking ca ital com rises a number o& di&&erent items and its management is di&&icult since these are o&ten linked" +ence altering one item may im act adversely u on other areas o& the business" 3anagement must ensure that a business has su&&icient working ca ital" .oo little will result in cash &low roblems highlighted by an organiAation e<ceeding its agreed overdra&t limit; &ailing to ay su liers on time; and being unable to claim discounts &or rom t ayment" #n the long run; a business with insu&&icient working ca ital will be unable to meet its current obligations and will be &orced to cease trading even i& it remains ro&itable"

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On the other hand; i& an organiAation ties u too much o& its resources in working ca ital it will earn a lower than e< ected rate o& return on ca ital em loyed which is not at all a desirable situation" .he rimary objective o& working ca ital management is to ensure that su&&icient cash is available toC3eet dayCtoCday cash &low needsE )ay wages and salaries when they &all dueE )ay creditors to ensure continued su lies o& goods and servicesE )ay government ta<ation and roviders o& ca ital G dividendsE and 9nsure the longCterm survival o& the business entity" #nter &irm com arision can be done with the hel o& ratio analysis as ratio analysis allows com arison o& one industryH&irm to another" Since &inancial ratio analysis looks at relationshi s inside the industryH&irm; an industryH&irm o& one siAe can be directly com ared to a second industryH&irm ?or a collection

o& industriesH&irms@; which may be larger or smaller or even in a di&&erent business"

C'APTER-7

11

#B15S.R, )RO-#L9

-3(2 stands &or -ast 3oving (onsumer 2oods" (om anies in the -3(2 sector rovide high volumeHlow value goods such as &ood; drink; household goods and con&ectionary items".he -3(2 sector is one o& the &astest growing sectors in the national economy and encom asses organiAations involved in distribution; manu&acturing and retailing" -ast 3oving (onsumer 2oods are a multiCmillion ru ees industry" -3(2 is one o& the most com etive areas" .he sector includes groceries; beauty

12

roducts and home care com anies; the majority o& which come &rom large global cor orations" At the time o& inde endence ?!9*7@ 3B(0s were allowed to o erate in #ndia; but the #ndian market was too small &or global 3B(0s" +LL has a manu&acturing base; (olgate and Bestle mainly undertook only trading activities" #n !978 several -3(2 roducts; which are essentially mass consum tion items; became lu<ury roducts due to e<orbitant burden o& e<cise duties; sales ta<" #n a -3(2 industry everyone is a consumer" .his makes the industry

ersonally relevant as everyone is ersonally a&&ected" )eo le get more e<cited and care more dee ly about the roducts they ut in use everyday" .he #ndian -3(2 industry witnessed signi&icant changes through the !99$s" 3any leading -3(2 layers such as +industan Lever Ltd" ?+LL@ and )rocter = 2amble #ndia Ltd" ?)=2@ have been &acing severe roblems on account o& increased com etition &rom small and regional layers and &rom slow growth across its various roduct categories" As a result; many o& these com anies were &orced to revam their roduct; marketing; distribution and customer service strategies to strengthen their osition in the market" .he realiAation o& the customer>s growing awareness and the need to meet changing re8uirements and re&erences on account o& changing li&estyles also contributed to the &ormulation o& customerCcentric strategies" +LL led the way in revolutioniAing the roduct; market; distribution and service &ormats o& the -3(2 industry by &ocusing on
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rural markets; direct distribution; creating new roduct; distribution and service &ormats" -3(2 does not su&&er &rom mass layo&&s every time the economy starts to di " ,ou may ut o&& buying a car; but you don>t ut o&& dinner" .he &ast moving consumer goods ?-3(2@ sector; which was beginning to be derisively re&erred to as the S3(2 industry ?slow moving consumer goods@ as it didn>t e<ceed a &laccid ! to !"5 er cent growth rate in the ast &our years; began to witness a slow revival in %$$*" #ndian -3(2 com anies like 1abur and +ll &or the &irst time &ound themselves under severe ressure as 3B(s went on rice slashing s ree" S" Raghunandan; vice resident; sales; 1abur #ndia; said that the ricing tactics o& multinational com anies had ut ressure on the #ndian brands" .he -3(2 sector also received a boost by government led initiatives in the %$$' budget such as the setting u o& e<cise &ree Aones in various arts o& the country that witnessed &irms moving away &rom outsourcing to manu&acturing by investing in the Aones" ASSO(+A3 has indicated that the -3(2 industry will achieve a growth

o& 'C* er cent in %$$5C$/" +owever; -3(2 com anies will &ace the challenges o& shar swings in commodity rices; e< ected to im act ro&its like never be&ore"

COMPET(TORS

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3AR#(O L.1"
3arico grou 0s history can be traced back to !8/% when Ianji 3orarji; started a small trading business in 3umbai" .he &amily set u the 4ombay Oil #ndustries Ltd ?4O#L@ in !9*8 with manu&acturing &acilities in 3umbai &or coconut oil e<traction lant; vegetable oil re&inery and a chemical lant" 3arico was incor orated in !988 to take over the then *$Cyear old consumer roducts business o& 4O#L" .he division was engaged in marketing o& coconut oil; edible oil; instant starch; &ruit jams etc 9arlier the brands o& Sa&&ola and )arachute were owned by 4ombay Oil #ndustries Limited and 3arico was given access to use these brands &or er etuity" #n -,$$; the brands were trans&erred to the com any &or a consideration o& Rs'$$mn" 3arico has 5 &actories; located at Sewree in 3umbai; Falgaon in 3aharashtra; )alakkad in Ierala; Saswad in )une and )onda in 2oa" 3arico is the market leader in the hair oil segment; with its )arachute and +air = (are brands" #t is also one o& the leading layers in the branded edible oil segment with strong brands like Sa&&ola and Sweekar" 4esides hair and edible oil; the com any has a resence in niche segments like #nstant Starch ?Revive@; Anti lice sham oo ?3ediker@ and &ood roducts like jams and sauces ?Sil@" 3arico also has a &ee based marketing arrangement with )rocter = 2amble ?)=2@ &or marketing a &ew )=2 brands through its own network" )arachute; Sa&&ola and Sweeker are the key earnings drivers; contributing to almost 8$J o& 3arico0s turnover" -ast moving consumer goods ?-3(2@ business is built on the two illars o& brand e8uity and distribution network" 4rand e8uities are built over a eriod o& time by consistent high 8uality and aggressive advertisement
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and marketing" Availability near the consumer through a wide distribution channel is another crucial success &actor; as roducts are small value; &re8uently urchased; daily use items" (om etition is intense; and layers have to remain cost e&&ective and rovide value &or money to consumers to retain market shares" .he com any is; at resent; highly de endent on its three main brands CC )arachute; Sa&&ola and Sweekar" .he growth in this category will be di&&icult to sustain in the longer run due to increasing com etition" Recently; +industan Lever ac8uired (ococare ?it already has Bihar under its &old@; which will see an intensi&ication o& com etition in the coconut oil category" 3arico has maintained )arachute market share des ite severe com etition" Bew edible oil roducts are launched with >2ood &or +ealth> ositioning under the Sa&&ola brand and catering to regional taste re8uirements through the Sweekar &ranchise" #n the hair oil segment; the com any has success&ully launched value added )arachute variants" A new brand Shanti Amla; in the amla hair oil category dominated by 1abur; has been launched during -,$% and has been e<tremely success&ul"

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+#B15S.AB L969R L.1"


.hree 5nilever com anies were merged in !95/ to &orm +LL" .hese com anies were +industan 6anas ati 3anu&acturing (om any Cedible oil ?established in !9'!@; Lever 4rothers #ndia LimitedC soa s ?!9''@ and 5nited .radersC ersonal roducts ?!9'5@" )onds joined the 5nilver &old through a global ac8uisition in !98/" #n the last decade; +LL has e< anded its o erations by the merger and takeover route" #t ac8uired .O3(O G a .ata grou com any ?!99'@; merged 5nilever grou com anies 4rooke 4ond Limited ?!99/@ and )onds> #ndia ?!998@; and has ac8uired cosmetic business o& another .ata grou com any Lakme ?!998@" +industan Lever Limited is the largest -3(2 (om any in the country; with a turnover o& Rs!!8bn" .he com any0s business s rawls &rom ersonal and household care roducts to &oods; beverages and s ecialty chemicals" .he com any has a dominating market share in most categories that it o erates in such as toilet soa s; detergents; skincare; hair care; color cosmetics; etc" #t is also the leading layer in &ood roducts" +LL is the market leader in the detergent and toilet soa industry with market share o& /$J and *$J res ectively" +LL0s turnover has now grown to Rs!!8bn; with soa s and ersonal roducts contributing 57J to turnover and beverages and &ood roducts contributing to %9J o& turnover"

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#n %$$!; soa s business ?Rs%!bn@ grew by !J and detergent sales ?Rs%$bn@ grew by 7J" Other ersonal roducts ?household care; oral acre; skin care; hair care; color cosmetics@ registered a !*J growth to Rs%*"/bn" 9< ansion o& the &oods business; which has been identi&ied as a major growth area; has not been as &ast as antici ated" 4everage sales move largely with commodity rice trends; which have remained on a downtrend"

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4ritannia #ndustries Ltd"


4ritannia was incor orated in !9!8 as 4ritannia 4iscuits (o Ltd in (alcutta" #n !9%*; )ea -rean 5I ac8uired a controlling stake; which later assed on to the Associated 4iscuits #nternational ?A4#@ a 5I based com any" 1uring the 05$s and0 /$s; 4ritannia e< anded o erations to 3umbai; 1elhi and (hennai" #n !987; Babisco; a well known 9uro ean &ood com any; ac8uired A4#" #n !989; F 3 )illai; a Singa ore based BR# businessman along with the 2rou e 1anone ac8uired Asian o erations o& Babisco; thus ac8uiring controlling stake in 4ritannia" #n !977; the 2overnment reserved the industry &or small scale sector; which constrained 4ritannia>s growth" 4ritannia>s controlling stake is jointly with 2rou e 1anone and Busli 7adia" 2rou e 1anone is one o& the leading layers in the world in bakery roducts business" #t ac8uired interest in 4ritannia #ndustries in !989 and ac8uired controlling stake in !99'"Busli 7adia grou is one o& the leading industrial houses in the country; with interests mainly in te<tiles and etrochemicals" 4ritannia>s lants are located in the * major metro cities C Iolkatta; 3umbai; 1elhi and (hennai" A large art o& roducts are also outsourced &rom third arty roducers" 1airy roducts are out sourced &rom three roducers C 1ynami< 1airy based in 4aramati; 3aharashtra; 3odern 1airy at Iarnal in +aryana@ and .hacker 1airy )roducts at +owrah in 7est 4engal"
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4ritannia is the market leader in the organiAed biscuit and bakery roduct market in #ndia" 4iscuits contribute to more than 8$J o& 4ritannia>s total turnover" Other roducts include bread and cakes" 4ritannia diversi&ied into dairy roducts in !997 with rocessed cheese" .he entry o& new 3B(0s has not osed a direct threat to 4ritannia; as these 3B(0s have ositioned their brands in the remiumHhealth segment" 4ritannia has maintained market leadershi with a *$J volume share and *8J value market share in the organiAed sector" -3(2 major +LL is e< ected to venture into the segment" 4ritannia has been aggressive in new launches and marketing during the last % years antici ating the com etition" #t has also recently ac8uired Iwality 4iscuits; gaining a strong &oothold in the southern market"

20

Bestle #ndia Ltd"


Bestle was romoted by Bestle Alimentana; SwitAerland; a wholly owned subsidiary o& Bestle +oldings Ltd"; Bassau; 4ahama #slands" Bestle is one o& the oldest &ood 3B( o erating in #ndia; with a resence o& over a century" -or a long time; Bestle #ndia0s o erations were restricted to im orting and trading o& condensed milk and in&ant &ood" Over the years; the (om any e< anded its roduct range with new roducts in instant co&&ee; noodles; sauces; ickles; culinary aids; chocolates and con&ectionery; dairy roducts and mineral water" Bestle was incor orated as a limited com any in !959" Bestle S A SwitAerland; is one o& the leading com anies in the global &oods industry" .he rinci al activities o& the grou encom ass beverages ?with Besca&e as the &lagshi brand@; milk roducts; rocessed &oods; cooking aids; bakery roducts; chocolates; con&ectioneries; harmaceutical roducts ?o hthalmic; surgical instruments etc@" Bestle has a resence in 8' countries worldwide" #t has a total number o& 5$9 &actories out o& which %%$ are located in 9uro e; !5' in America and !'/ in A&rica; Asia and Oceania" Bestle started its manu&acturing o erations with 3ilkmaid in !9/% at 3oga &actory" 3anu&acturing o& Besca&e started in !9/* at the same &actory" .he com any set u another &actory at (herambadi in .amil Badu; &or manu&acture o& in&ant &oods; co&&ee etc" .he com any set u its Banjangad ?Iarnataka@ &actory in !989 and the Samlakha ?+aryana@ &actory in !99%" .he )onda ?2oa@ &actory started o erations in !995"

21

.he (om any set u its si<th manu&acturing unit in !997 at 4icholim in 2oa" BestlK #ndia manu&actures roducts o& truly #nternational 8uality under brand names such as 3#LI3A#1; 969R,1A,; (9R9LA(; LA(.O29B; 3A22#; B9S(A-9; B9S(A-9 S5BR#S9; B9S.9A; 3#LO; I#.IA.; 3#LI, 4AR; 35B(+; )OLO; B9S.L9 3#LI; B9S.L9 1A+#; B9S.L9 -R5#. :B 3#LI and B9S.L9 -R5#. :B 1A+#" Bestle registered robust ro&it growth o& */J to Rs!"7'bn in %$$!" )ro&it would have been higher but &or the additional costs associated with the new businesses o& water; li8uid milk and chilled dairy roducts" Sales rose by !*"5J to Rs!9"%!bn" 1omestic sales grew by !*"!J to Rs!/"!!bn" 9< orts; contributing !/J to turnover; increased by !/"7J to Rs'"!bn" 7*J o& the e< orts continue to be to its key market G Russia" .he com any has also re orted a strong 55J growth in net ro&it in %$$!"Sales have registered a !7"*J growth mainly driven by higher domestic sales in the chocolate and culinary roduct segments"

22

(adbury #ndia Ltd"


(adbury was originally incor orated as a wholly owned subsidiary o& (adbury Schwe es Overseas Ltd ?(SOL@ in !9*8" .he com any0s original name was (adbury -ry ?#ndia@ Ltd"#n !98%E the name was changed to +industan (ocoa )roducts" .he current name was restored in 1ec 089" #n !98/; (adbury &orayed into biscuits with (adbury 4utter; 2lucose and 4ournvita brands" .he business however; could not take o&& and was discontinued 'C* years later" #n !989; (adbury diversi&ied into ice creams with 1ollo s and Lo sto brands; which were sold o&& to 4rooke 4ond in !99*" (adbury0s manu&acturing o erations started in 3umbai in !9*/; which was subse8uently trans&erred to .hane" .he com any; way back in !9/*; ioneered cocoa &arming in #ndia to reduce de endence on im orted cocoa beans" #n !977; the com any also took ste s to romote higher roduction o& milk " #n !995; (adbury e< anded 3alan ur lant in a major way" .he 3alan ur lant has moderniAed &acilities &or 2ems; 9clairs; and )erk etc" (adbury has been losing market share; but continues to dominate the chocolate market with about /5J market share" Bestle has emerged as a signi&icant com etitor with about %*J market share (adbury re orted sales o& Rs/"%/bn in %$$!" .he (adbury management has been unable to achieve the volume growth targets set during the last two years" .he com any remains de endent on a single category G (hocolates to drive growth"

23

C'APTER-8

COMPAN4 PROF(LE

24

O)ER '3NDRED 4EARS OF CAR(NG


1abur commenced o erations in !88* and is today a multiC locational; multiC roduct enter rise" .he com any has major interests in health and beauty care" 1abur is a leader in Ayurveda G the traditional #ndian health care system" .he com any has !% manu&acturing lants in #ndia; Be al and 9gy t" 1abur roducts are also manu&actured in 1ubai" 1abur has a transactional network o& !9 o&&ices servicing both rural and urban markets in #ndia" .he com any has sales and marketing o&&ices in 1ubai and London" 1abur roducts are available in over 5$ countries"

25

FO3ND(NG T'O3G'TS
L7hat is that li&e worth which cannot bring com&ort to othersM

.he doorste 01AI.AR0


.he story o& 1abur began with a small; but visionary endeavor by 1r" S" I" 4urman; a hysician tucked away in 4engal" +is mission was to rovide e&&ective and a&&ordable cure &or ordinary eo le in &arC&lung villages" 7ith missionary Aeal and &ervor; 1r" 4urman undertook the task o& re aring natural cures &or the killer diseases o& those days; like cholera; malaria and lague" Soon the news o& his medicines traveled; and he came to be known as the trusted >1aktar> or 1octor who came u with e&&ective cures" And that is how his venture 1abur got its name C derived &rom the 1evanagri rendition o& 1aktar 4urman" 1r" 4urman set u 1abur in !88* to roduce and dis ense Ayurvedic medicines" Reaching out to a wide mass o& eo le who had no access to ro er treatment" 1r" S" I" 4urman>s commitment and ceaseless e&&orts resulted in the com any growing &rom a &ledgling medicine manu&acturer in a small (alcutta house; to a household name that at once evokes trust and reliability"

26

!88* !89/ 9arly !9!9 !9%$ !9'/ !97% !979 !98/ !99% !99' !99* !995 !99/ !997 !998 %$$$ %$$% %$$'

4irth o& 1abur Setting u o& a manu&acturing lant !9$$s Ayurvedic 3edicines 9stablishment o& Research Laboratories 9< ands &urther 1abur #ndia ?1r"S"I"4urman@ )vt"Ltd" Shi&t to 1elhi Sahibabad &actoryH1abur research &oundation )ublic Limited (om any Foint 6enture with Agrolimen o& S ain (ancer treatment )ublic #ssues Foint 6entures .hree se arate divisions -oods 1ivision H )roject S.ARS )ro&essionals to manage the (om any .urnover o& Rs"!;$$$ crores Bet sales reached Rs"!!/'"!9 crores" 1emerged its )harmaceuticals 1ivision

COMPAN4S '(STOR4

27

DAB3R AT A GLANCE
1abur #ndia Limited has marked its resence with some very signi&icant achievements and today commands a market leadershi status" Our story o& success is based on dedication to nature; cor orate and rocess hygiene; dynamic leadershi and commitment to our artners and stake holders" .he results o& our olicies and initiatives s eak &or themselves" Leading consumer goods com any in #ndia with a turnover o& Rs"!%/8"7% (rore?-,$*C$5@ .hree major Strategic 4usiness 5nits ?S45@ G -amily )roducts 1ivision ?-)1@; +ealth (are )roducts ?+()1@ and 1abur Ayurvedic S ecialties ?1ASL@" .hirteen 5ltraC3odern manu&acturing units s read across &our (ountries" )roducts marketed in over 5$ (ountries"

FPD; dealing with ersonal care; the largest S45 contributing to *5J sales o& 1abur )roducts related to hair care; Skin care; Oral care and -oods" ' Leading brandsC 6atika; Amla +air Oil and Lal 1ant 3anjan with Rs"!$$ (rore turnover each" 6atika +air oils and Sham oo the high growth brand" Strategic ositioning o& honey as &ood roduct; leading to market leadershi ?over *$J@ in branded honey market"

28

'CPD; dealing with daily health care; Second largest S45 with %8J share in sales )roducts related to +ealth Su lements; 1igestive; 4aby (are and Batural (ures" Leadershi in Ayurvedic and +erbal roducts market with highly o ular brands" 1abur (hyawan rash the largest selling Ayurvedic and +erbal roducts market with highly o ular brands" Leader in +erbal 1igestives with 9$J market share" +ajmola tablets in command with 75J market share o& digestive tablets category" 1abur Lal .ail to s baby massage oil market with '5J o& total share"

DASL; dealing with classical Ayurvedic medicines" +as more than %5$ roducts sold through rescri tions; as well as over the counter 3ajor categories in traditional &ormulations includeD Asav Arishtas Ras Rasayanas (hurans 3edicated Oils )ro rietary Ayurvedic medicines develo ed by 1abur includeD Bature (are #sabgol 3adhuvaani .ri&gol 1ivision also works &or romotion o& Ayurveda through organiAed community o& traditional ractitioners and develo ing &resh batches o& students"

29

DAB3RS MA2OR STRATEG(C B3S(NESS 3N(TS


1abur has three major Strategic 4usiness 5nits ?S45s@ namelyD -amily )roducts 1ivision with a share o& *5J in its total sales" 1abur Ayurvedic S ecialities having a share o& %7J in its total sales" +ealth (are )roducts with a share o& %8J in the total sales"

Da04r Ay4rvedi5 Spe5ialities $%6

1aburs S45s And .heir Share #n Sales


)a2ily 3rod45ts Division 7ealth Care 3rod45ts Da04r Ay4rvedi5 Spe5ialities

)a2ily 3rod45ts Division (&6

7ealth Care 3rod45ts $86

30

DAB3RS CORE )AL3ES


)(S(ON
L1edicated to the health and well being o& every household"M

PR(NC(PLES
OWNERS'(P
.his is our com any" 7e acce t ersonal res onsibility; and accountability to meet business needs"

PASS(ON FOR W(NN(NG


7e all are the leaders in our area o& res onsibility; with a dee commitment to deliver the results" 7e are determined to be the best at doing what matters the most"

PEOPLE DE)ELOPMENT
)eo le are our most im ortant asset" 7e add value through result driven training; and we encourage and award e<cellence"

CONS3MER FOC3S
7e have su erior understanding o& consumer needs and develo &ul&ill them better" roducts to

31

TEAM WORK
7e work together on the rinci le o& mutual trust and trans arency in a boundary less organiAation" 7e are intellectually honest in advocating ro osals; including recogniAing risks"

(NNO)AT(ON
(ontinuous innovation in roducts = rocesses is the basis o& our success"

(NTEGR(T4
7e are committed to the achievement o& business success with integrity" 7e are honest with the consumers; with business artners and with each other"

32

DAB3R WORLD W(DE

1abur>s mission o& o ulariAing a natural li&estyle transcends national boundaries" .oday there is global awareness o& alternative medicine; natureC based and holistic li&estyles and an interest in herbal roducts" 1abur has been in the &ore&ront o& o ulariAing this alternative way o& li&e; marketing its roducts in more than 5$ countries all over the world" 1A45R roducts 7orld 7ide 1abur has s read widely and dee ly to be in close touch with overseas consumers" O&&ices and re resentatives in E#rope1 A,er!ca and A+r!caE A s ecial herbal health care and ersonal care range success&ully selling in markets o& the M!--le Ea$t; Far Ea$t and several E#ropean co#ntr!e$" #nroads into 9uro ean and American markets that have good otential due to resurgence o& the 9ac.-to-nat#re ,o:e,ent" 9< ort o& Act!:e P%ar,ace#t!cal (n re-!ent$ ?A)#s@; manu&actured under strict international 8uality benchmarks; to E#rope; Lat!n A,er!ca; A+r!ca; and other A$!an co#ntr!e$" 9< ort o& &ood and te<tile grade natural gums; e<tracted &rom traditional lant sources"

33

PROD3CTS

'EALT' S3PPLEMENTS5 Da9#r C%ya;anpra$% Da9#r Gl#co$e D D(GEST()ES5 'aj,ola Ma$t Ma$ala Anar-ana 'aj,ola 'aj,ola Can-y 'aj,ola Can-y F#n7 P#-!n 'ara&L!<#!- an- Pearl$* P#-!n 'ara G Da9#r '!n ol!

34

BAB4 CARE5 Da9#r Lal Ta!l Da9#r Ba9y Ol!:e O!l Da9#r 2an,a G%#nt!

NAT3RAL C3RES5 S%!laj!t Gol Nat#re Care Sat ($a9 ol S%!laj!t R!n R!n (tc% Care Bac.-A! S%an.%a P#$%p! Da9#r Bal, Sar9yna Stron

35

'A(R CARE O(L5 A,la 'a!r O!l A,la L!te 'a!r O!l )at!.a 'a!r O!l An,ol Sar$on A,la 'A(R CARE S'AMPOO5 )at!.a 'enna Con-!t!on!n S%a,poo )at!.a Ant! Dan-r#++ S%a,poo An,ol Nat#ral S%!ne S%a,poo SK(N CARE5 G#la9ar!
36

)at!.a Fa!rne$$ Face Pac. ORAL CARE5 Da9#r Re- Gel Da9#r Re- Toot%pa$te Da9#r Lal Dant Manjan

Da9#r B!naca Toot%9r#$%

REAL5 Real Fr#!t 2#!ce Real Act!:

'OMMADE5
37

Coo.!n Pa$te$ Cocon#t M!l. To,ato P#ree

CAPS(CO RED

LEMONEE=

Da$%,#lar!$%ta A$%o.ar!$%ta La#%a$a:a Ma%anarayan Ta!l


38

2#r!tap Ma-%#:an! La:an B%a$.ar C%#rna

'EALT' CARE5 Da9#r C%ya;anpra$% P#-!n%ara 'aj,ola Ta9let$ Da9#r 'oney S%!laj!t

39

SK(N CARE5 Nat#ral Soap$ ORAL CARE5 'er9al Toot% Pa$te 'A(R CARE5 )at!.a S%a,poo$ an- Con-!t!oner$ Da9#r A,la 'a!r O!l FOODS5 Real 2#!ce$ 'o,e,a-e Foo- Pro-#ct$ DR.B3RMAN &R3SS(A*

'ealt% S#pple,ent$ Ay#r:e-!c Toot%pa$te>$

RE-ENG(NEER(NG FOR )AL3E CREAT(ON


1abur has reCorganiAed two o& its biggest S45sC the -amily )roducts 1ivision ?)ersonal (are )roducts@ and the +ealth (are 1ivision into a single S45" .his initiative will eliminate overla s and reduce costs by leveraging synergies o& scale"

40

ReCengineering internal o erations to leverage strengths and synergies; im rove scale; reduce cost and o timiAe e&&iciencies are key &or im roved value creation" .o derive ma<imum values on these arameters; 1abur has emerged its erstwhile S450sC .he -amily )roduct 1ivision and +ealth (are )roducts 1ivision into one" .he common arrangement will eliminate any overla s in the distribution and retail network; rovide economies o& scale and hel the (om any be more res onsive to market needs" -ocus will be on roduct categories and resources will be ooled to strengthen individual categories with aggressive sales and marketing initiatives" .his move will inject a new im ulse in 1abur and also boost the (om any0s sales e&&orts"

DEMERG(NG FOR )AL3E CREAT(ON


.he demerger o& 1abur0s -3(2 and )harmaceutical businesses is a valueC enhancing move re resenting a winCwin situation &or both these businesses" A clear line o& sight and &ocused growth strategies would rovide e< onential growth o ortunities and greater value &or shareholders"

41

.his demerger o& 1abur0s -3(2 and )harmaceutical business is a major restructuring move undertaken by the (om any to rovide greater &ocus and inde endence to the two businesses" .he -3(2 business; which will be the main business o& 1abur #ndia; will concentrate on strengthening its core com etencies in )ersonal (are; +ealth (are and Ayurveda" .he new )harmaceutical (om anyC 1abur )harma Ltd"C will &ocus on its e< ertise in Allo athy; Oncology -ormulations and 4ulk drugs" .he (om any is already a leader in the Oncology segment in #ndia and will &ollow aggressive strategies to ursue its global ambitions" 4oth these com anies will have dedicated management teams; with the &reedom and resources to ursue their inde endent growth strategies" 1abur believes that the sum o& arts will &ar e<ceed the value o& the single entity"

42

C'APTER-?

7ORI#B2 (A)#.AL 3ABA2939B.

43

(NTROD3CT(ON TO WORK(NG CAP(TAL


LWor.!n Cap!tal !$ t%e L!+e-Bloo- An- Controll!n Ner:e Center o+ a B#$!ne$$0

.he term Wor.!n Cap!tal re&ers to the ca ital re8uired &or dayCtoCday o erations o& a business enter rise" #t is re resented by e@ce$$ o+ C#rrent a$$et$ o:er C#rrent L!a9!l!t!e$" #t is necessary &or any organiAation to run success&ully its a&&airs; to rovide &or ade8uate working ca ital" .oo large investment in (urrent Assets means blocking the ca ital that can be used roductively elsewhere" On the other hand too little investment can be e< ensive" -or e<am le; insu&&icient inventory may cause loss o& sales to (ustomers" All this indicates that ro er estimation o& the 7orking (a ital re8uirements is a must &or running the business e&&iciently and ro&itably" 7orking ca ital is there&oreDC

7ORI#B2 (A)#.AL N

(urrent

OO stock P debtors P cash

Assets

- (urrent liabilities

.he im ortance o& having working ca ital is best understood as >costs e< ended be&ore ayment received &or goodsHservice rovided to the customer>" .here&ore; no ca ital means no roduction and no customers; which means no ca ital"""

44

There are basically two concepts of working capital Gro$$ Wor.!n

Cap!tal5 #t is the amount o& ca ital invested in the total (urrent assets o& the enter rise" (urrent assets are those assets; which in ordinary course o& business can be converted into cash within a short eriod o& normally one accounting year" Net Wor.!n Cap!tal5 #t re&ers to the di&&erence between net current assets and liabilities" (urrent liabilities are those claims o& outsiders; which are e< ected to mature &or ayment within an accounting year" Bet working ca ital can be ositive or negative" A ositive net working ca ital will arise when current assets increase current liabilities" A negative working ca ital will arise when current liabilities are in e<cess o& current assets" C#rrent A$$et$5 (urrent assets; sometimes called li8uid assets; are those resources o& a &irm; which are either held in the &orm o& cash or are e< ected to be converted in cash within the accounting eriod in oneCyear duration" .he o erating cycle is the time taken to convert the raw materials into &inished goods and convert receivables ?goods sold on credit@ into cash" (urrent Assets includeD (ash in hand 4ank balances 4ills Receivables Sundry 1ebtors ?less rovision &or bad debts@ Short term loans and advances #nventories o& stocks; asD Raw material 7ork in rogress Stores and s ares -inished 2oods .em orary #nvestments o& sur lus &unds )re aid e< enses Accrued #ncomes"

45

C#rrent L!a9!l!t!e$5 (urrent Liabilities are debts ayable within an accounting eriod" (urrent assets are converted into cash to ay current liabilities" (urrent Liabilities includeD 4ills )ayable Sundry creditors or Accounts )ayable Accrued or Outstanding e< enses Short term loans; Advances or de osits" 1ividends )ayable 4ank Overdra&t )rovision &or ta<ation; i& it does not amount to a ro riation o& ro&its"
#t is a conventional rule to maintain the level o& current assets twice the level o& current liabilities" A weak li8uidity osition oses a threat to the solvency o& the com any and makes it unsa&e and unsound" A negative working ca ital means a negative li8uidity and at times it may rove to be harm&ul &or the com any0s re utation" 9<cessive li8uidity is also bad" #t may be due to mismanagement o& current assets" .here&ore rom t and timely action should be taken by the management to im rove and correct the imbalances in the li8uidity osition o& the &irm" Gro$$ Wor.!n Cap!tal is a 2oing (oncernH-inancial (once t where as the Net Wor.!n Cap!tal is an Accounting (once t o& working ca ital"

46

(MPORTANCE OF WORK(NG CAP(TAL 7orking ca ital constitutes art o& the (rown>s investment in a de artment" Associated with this is an o ortunity cost to the (rown" ?3oney invested in one area may QcostQ o ortunities &or investment in other areas"@ #& a de artment is o erating with more working ca ital than is necessary; this overCinvestment re resents an unnecessary cost to the (rown" OB2ECT()E5 .he objective o& working ca ital management is to maintain the o timum balance o& each o& the working ca ital com onents" .his includes making sure that &unds are held as cash in bank de osits &or as long as and in the largest amounts ossible; thereby ma<imiAing the interest earned" +owever; such cash may more a ro riately be QinvestedQ in other assets or in reducing other liabilities" Other objectives o& working ca ital management are as &ollowsD C .o identi&y cash &low cycles o& the &irm" .o maintain the level o& current assets twice the level o& current liabilities" .o hel the com any to maintain good business relations" .o determine the &uture ca ital; li8uidity osition and other re8uirements o& the com any"

7orking ca ital management takes lace at two levelsD Ratio analysis can be used to monitor overall trends in working ca ital and to identi&y areas re8uiring closer management" .he individual com onents o& working ca ital can be e&&ectively managed by using various techni8ues and strategies"

47

7hen considering these techni8ues and strategies; de artments need to recogniAe that each de artment has a uni8ue mi< o& working ca ital com onents" .he em hasis that needs to be laced on each com onent varies according to de artment" -or e<am le; some de artments have signi&icant inventory levelsE others have little i& any inventory" -urthermore; working ca ital management is not an end in itsel&" #t is an integral art o& the de artment>s overall management" .he needs o& e&&icient 7orking ca ital management must be considered in relation to other as ects o& the de artment>s &inancial and nonC&inancial er&ormance"

48

CLASS(F(CAT(ON OF WORK(NG CAP(TAL


7orking (a ital is classi&ied on the &ollowing two basisD ?a@ On basis o& time ?b@On basis o& conce t

I#B1S O- 7ORI#B2 (A)#.AL

On basis o& (once t

On basis o& .ime

2ross 7orking (a ital

Bet 7orking (a ital

)ermanentH -i<ed 7orking (a ital

.em oraryH 6ariable 7orking (a ital

Regular Reserve 7( 7(

Seasonal S ecial 7( 7(

49

Per,anent or F!@e- Wor.!n Cap!tal5


#s the minimum amount o& 7orking (a ital re8uired to ensure e&&ective utiliAation o& &i<ed &acilities and &or maintaining the circulation o& (urrent assets" .here is always a minimum level o& (urrent Assets; which are continuously re8uired by the enter rise to carry out its normal business o erations" 9<am leD 9very &irm has to maintain a minimum amount o& raw materials; 7orkCinC)rogress; -inished goods and cash balance" 3inimum level o& (urrent Assets is called ermanent or &i<ed working ca ital as this art o& 7orking (a ital is ermanently blocked in (urrent Assets" As the business grows; re8uirements o& ermanent 7orking ca ital also increase due to increase in current assets" !. Re #lar Wor.!n Cap!tal5 #t is re8uired to ensure circulation o& (urrent Assets &rom cash to inventories; &rom inventories to receivables and &rom receivables to cash and so on" !!. Re$er:e Wor.!n Cap!tal5 #t is the e<cess amount over the re8uirement &or regular 7orking (a ital which may be rovided &or contingencies that may arise at unstated eriods; such as strikes; rise in rices; de ression etc"

Te,porary or )ar!a9le Wor.!n Cap!tal5


#t is the amount o& 7orking (a ital; which is re8uired to meet seasonal demands and some s ecial e<igencies such as launching o& e<tensive marketing cam aign &or conducting research etc"

50

FACTORS DETERM(N(NG T'E WORK(NG CAP(TAL REA3(REMENTS


Bature or (haracteristics o& 4usinessC.he working ca ital re8uirements o& an enter rise are basically related to the conduct o& the business" 9very com any according to their nature o& business has to maintain a certain level o& working ca ital"

)roduction )olicyC.he roduction olicies ursued by the management has a signi&icant e&&ect on the re8uirements o& working ca ital o& the business" .he roduction schedule has a great in&luence on the level o& inventories" .he decision o& the management regarding automation; etc"; will also have its e&&ect on working ca ital re8uirements"

Seasonal 6ariationsC3ost &irms e< erience seasonal and cyclical &luctuations in the demand &or their roducts and sevices" .hese business variations e&&ect the working ca ital re8uirement; s ecially the tem orary working ca ital re8uirement o& the &irm" 7hen there is an u ward swing in the economy; sales will increaseE corres ondingly; the &irm0s investment in inventories and book debts will also increase" 5nder boom; additional investment in &i<ed assets may be made by some &irms to increase their roductive ca acity" .his act o& the &irm will re8uire &urther additions o& working c ital" 7hen there is a decline in the economy sales will &all and conse8uently; levels o& inventories and book debts will also &all"

51

(redit olicyCA com any which allows liberal credits to its customers; may have higher sales but will need more working ca ital as com ared to a com any which has an e&&icient debt collection machinery and observing strict terms" .he working ca ital re8uirements can also be a&&ected by the credit &acilities enjoyed by the com any"

Rate o& growth o& 4usinessCAs a com any growsE it is logical to e< ect that a large amount o& working ca ital will be re8uired" #t is; o& course; di&&icult to determine recisely the relationshi between the growth in the volume o& business o& a com any and the increase in its working ca ital" .he com osition o& working ca ital in a growing com any also shi&ts with economic circumstances and cor orate ractices"

4usiness cycleC1i&&erent hases o& business cycle i"e; boom; recession; recovery etc" also a&&ect the working ca ital reuirement" #n case o& boom condition business activities e< and "As a result; the need &or cash; inventories etc" increases resulting in more and more &unds blocked in these current assets" #n case o& recession eriod; there is usually dullness in business activities and there will be an o osite e&&ect on the level o& working ca ital re8uirement" .here will be a &all in inventories and cash re8uirements etc"

3anu&acturing )rocessH Length o& roduct cycleC.he manu&acturing rocess com rises o& the urchase and use o& raw materials and the roduction o& &inished goods" Longer the manu&acturing cycle; larger will be the &irm0s working ca ital re8uirements"

52

WORK(NG CAP(TAL C4CLE


.he working ca ital cycle can be de&ined asD L.he eriod o& time which ela ses between the oint at which cash begins to be e< ended on the roduction o& a roduct and the collection o& cash &rom a customerM" .he &aster a business e< ands; the more cash it re8uires &or working ca ital and investment" .he chea est and best sources o& cash e<ist as working ca ital right within business" 2ood management o& working ca ital will generate cash; which will hel im rove ro&its and reduce risks" 4ear in mind that the cost o& roviding credit to customers and holding stocks can re resent a substantial ro ortion o& &irm0s total ro&its"

53

.here are two elements in the business cycle that absorbs cashD #nventory ?Stocks and workCinC rogress@ Receivables ?1ebtors owing you money@ .he main sources o& cash are )ayables ?your creditors@ and 98uity and Loans" 7hen it comes to managing working ca italC T(ME (S MONE4" #& you can get money to move &aster around the cycle ?e"g" collect monies due &rom debtors more 8uickly@ or reduce the amount o& money tied u ?e"g" reduce inventory levels relative to sales@; the business will generate more cash or it will need to borrow less money to &und working ca ital" As a conse8uence; you could reduce the cost o& bank interest or you0ll have additional &ree money available to su ort additional sales growth or investment" Similarly; i& you can negotiate im roved terms with su liers e"g" get longer credit or an increased credit limitE you e&&ectively create &ree &inance to hel &und &uture sales"

54

F(NANC(NG OF WORK(NG CAP(TAL


.here are two ty es o& working ca ital re8uirements in a com anyC
i@ )ermanent or -i<ed 7orking (a ital Re8uirements ii@ .em orary or 6ariable 7orking (a ital Re8uirements 1e ending on the above mentioned re8uirements &ollowing are the sources o& &inancing working ca italC

SO3RCES Long .erm Sources Short .erm Sources (ommercial 4anks (ommercial a er .rade (reditors #nstallment credit Accounts ayables Accrued 9< enses

Shares 1ebentures )ublic 1e osits Loans &rom -inancial institutions

55

SO3RCES OF WORK(NG CAP(TAL


1abur #ndia Limited as a success&ul (om any in -3(2 sector has the &ollowing sources available &or the &ul&illment o& its working ca ital re8uirements in order to carry on its o erations smoothly" 4ABISD

.hese include the &ollowing banksD )unjab Bational 4ank Standard (hartered 4ank Ltd" +ong Iong and Shanghai 4anking (or " Ltd" State 4ank O& #ndia +1-( 4ank Ltd" #14# 4ank Ltd" (itibank

(O339R(#AL )A)9RSD (ommercial )a ers have become an im ortant tool &or &inancing working ca ital re8uirements o& a com any" (ommercial )a er is an unsecured romissory note issued by the com any to raise shortC term &unds" .he buyers o& the (ommercial )a ers include banks; insurance com anies; unit trusts and com anies with sur lus &unds to invest &or a short eriod with minimum risk" 1abur #ndia Limited issues (ommercial )a ers and had commercial worth Rs" !$$$ lacs in the year %$$%C$'"

56

WORK(NG CAP(TAL ANAL4S(S


7orking ca ital is one o& the most di&&icult &inancial conce ts to understand &or the smallCbusiness owner" #n &act; the term means a lot o& di&&erent things to a lot o& di&&erent eo le" By -e+!n!t!on; 7orking (a ital is the amount by which current assets e<ceed current liabilities" A use&ul tool &or the smallCbusiness owner is the o erating cycle" .he o erating cycle analyAes the Accounts Receivable; #nventory and Accounts )ayable cycles in terms o& days" #n other words; accounts receivables are analyAed by the average number o& days it takes to collect an account" #nventory is analyAed by the average number o& days it takes to turn over the sale o& a roduct ?&rom the oint it comes in your door to the oint it is converted to cash or an account receivable@" Accounts ayables are analyAed by the average number o& days it takes to ay a su lier invoice" 3ost businesses cannot &inance the O erating (ycle ?accounts receivable days P inventory days@ with accounts ayable &inancing alone" (onse8uently; working ca ital &inancing is needed" .his short&all is ty ically covered by the net ro&its generated internally or by e<ternally borrowed &unds or by a combination o& the two"

3ost businesses need shortCterm working ca ital at some oint in their o erations" -or instance; retailers must &ind working ca ital to &und seasonal inventory buildu between Se tember and Bovember &or (hristmas sales" 4ut even a business that is not seasonal occasionally e< eriences eak months when orders are unusually high" .his creates a need &or 7orking (a ital to &und the resulting #nventory and Accounts Receivable buildu "

57

Some small businesses have enough cash reserves to &und seasonal 7orking (a ital needs" +owever; this is very rare &or a new business" #& your new venture e< eriences a need &or shortCterm 7orking (a ital during its &irst &ew years o& o eration; you will have several otential sources o& &unding" .he im ortant thing is to lan ahead" #& you get caught o&& guard; you might miss out on the one big order that could have ut your business over the hum " +ere are the &ive most common sources o& shortCterm working ca ital &inancingD

98uity .rade (reditors -actoring Line O& credit ShortCterm Loans

E<#!ty5 #& your business is in its &irst year o& o eration and has not yet become ro&itable; then you might have to rely on e8uity &unds &or shortCterm working ca ital needs" .hese &unds might be injected &rom your own ersonal resources or &rom a &amily member; &riend or thirdC arty investor" Tra-e Cre-!tor$5 #& you have a articularly good relationshi established with your trade creditors; you might be able to solicit their hel in roviding shortCterm working ca ital" #& you have aid on time in the ast; a trade creditor may be willing to e<tend terms to enable you to meet a big order" -or instance; i& you receive a big order that you can &ul&ill; shi out and collect in /$ days; you could obtain /$Cday terms &rom your su lier i& '$Cday terms are normally given" .he trade creditor will want roo& o& the order and may want to &ile a lien on it as security"

58

Factor!n 5 -actoring is another resource &or shortCterm working ca ital &inancing" Once you have &illed an order; a &actoring com any buys your account receivable and then handles the collection" .his ty e o& &inancing is more e< ensive than conventional bank &inancing but is o&ten used by new businesses" L!ne O+ Cre-!t5 4anks to new businesses do not o&ten give Lines o& credit" +owever; i& your new business is well ca italiAed by e8uity and you have good collateral; your business might 8uali&y &or one" A line o& credit allows you to borrow &unds &or shortCterm needs when they arise" .he &unds are re aid once you collect the accounts receivable that resulted &rom the shortCterm sales eak" Lines o& credit ty ically are made &or one year at a time and are e< ected to be aid o&& &or '$ to /$ consecutive days sometime during the year to ensure that the &unds are used &or shortCterm needs only" S%ort-ter, loan5 7hile your new business may not 8uali&y &or a line o& credit &rom a bank; you might have success in obtaining a oneCtime shortCterm loan ?less than a year@ to &inance your tem orary working ca ital needs" #& you have established a good banking relationshi with a banker; he or she might be willing to rovide a shortCterm note &or one order or &or a seasonal inventory andHor accounts receivable buildu " #n addition to analyAing the average number o& days it takes to make a roduct ?inventory days@ and collect on an account ?account receivable days@ vs" the number o& days &inanced by accounts ayable; the o erating cycle analysis rovides one other im ortant analysis" -rom the o erating cycle; a com utation can be made o& the dollars re8uired to su ort one day o& accounts receivable and inventory and the dollars rovided by a day o& accounts ayable" 7orking ca ital has a direct im act on CAS' FLOW in a business" Since cash &low is the name o& the game &or all business owners; a good understanding o& working ca ital is im erative to make any venture success&ul"

59

.he rimary objective o& working ca ital management is to ensure that su&&icient cash is available toD 3eet dayCtoCday cash &low needsE )ay wages and salaries when they &all dueE )ay creditors to ensure continued su lies o& goods and servicesE )ay government ta<ation and roviders o& ca ital G dividendsE and 9nsure the longCterm survival o& the business entity" )oor working ca ital management can lead toD OverCca italiAation ?and there&ore waste through under utiliAation o& resources and hence oor returns@E and Overtrading ?trying to maintain a level o& sales which is higher than working ca ital can sustain G &or businesses which e<tend credit terms; more sales means more debtors and higher working ca ital demands@"

60

COMPAR(SON OF WORK(NG CAP(TALS OF D(FFERENT COMPAN(ES


?Amt #n Rs" 3illions@

Co,pany Na,e

FB4

C#rrent A$$et$
%5!"97! %'99"/! '8788"8$ !9!7"%! %!75"9$ 55!%"**

C#rrent Net L!a9!l!t!e$ Wor.!n Cap!tal


'%%"%%% %'5/"/8 '98$%"*9 !$//"!$ !'5%"*$ 8!$$"8 C7$"%5 *%"9' C!$!'"/9 85!"!! 8%'"5$ C%588"'/

1abur #ndia Ltd" 4ritannia #ndustries Ltd" +industan Lever Ltd" 3arico #ndustries Ltd" (adbury #ndia Ltd" Bestle #ndia Ltd"

%$$*C %$$5 %$$'C %$$* %$$%C %$$' %$$'C %$$* %$$%C %$$' %$$'C %$$*

SourcesCAnnual re ort o& 1abur #ndia ltd?%$$*C$5@; +industan Lever ltd"?%$$%C$'@;magaAines like 4usiness world; 4usiness #ndia; 4usiness .oday; articles &rom news a ers like 9conomic times; 4usiness line And websites likeCwww"marico"com; www"nestle"com;www"study&inance"com"

61

WORK(NG CAP(TAL GRAP'S


Working Capital O5 Dabur India Ltd&
'!!! $&!! $!!! "&!! "!!! &!! ! #&!! $9%&-98 $'8(-9( $'!!-%% "8:%-'"

#$('-99 $!!( $!!' $!!$ $!!" $!!!

.he above chart dis lays the working ca ital scenario at 1abur #ndia Ltd" 1abur has been constantly reducing its working ca ital and in the year %$$'C%$$* a stee decline has taken lace in the com any0s working ca ital; reducing it to a negative o& Rs"C%*'"99 millions" .his has roved the managerial e&&iciency at 1abur in its -inances" .he com any has reduced its ayment eriod &rom '9 days to a negative o& 5 days; which shows that the com any has enough

62

o& &unds available on credit &rom its su liers; and is collecting money &rom its debtors at a &aster ace to avoid much o& the bad debts"

Working Capital O5 Cadbur6 India Ltd&

"&!! "!!! &!! ! $!!' 8$'-&

"'!%-%

"!%9-8'

9("-'( :'8-(%

$!!$

$!!"

$!!!

"999

.he above gra h dis lays the working ca ital &or various years o& (adbury #ndia Ltd" .he working ca ital o& this com any has been constantly increasing e<ce t &or the year %$$%C%$$' where it has declined" .his shows that (adbury #ndia Ltd" has lots o& cash blocked in the &orm o& current assets" +ence because o& it the working ca ital o& the com any is ositive and high" .he com any needs to strengthen its cash olicies and reduce its money being blocked in the current assets" Also by

63

decreasing the ayment eriod the com any can im rove u on the working ca ital"

Working Capital O5 7indu(tan Le'er Ltd&


$,!!!-!! '!!-9: !-!! #$,!!!-!! #(,!!!-!! #',%''-%% $!!' $!!$ $!!" $!!! "999 #",!"'-:9 ",%"(-'9 ",8%$-(8

.he above gra h dis lays the working ca ital scenario o& +industan Lever Limited the largest -3(2 (om any in the world" .he com any has been having an enormous cash reserves &or lanning out its &uture investments" .he working ca ital has been almost nil and negative since the ast &ew years; showing that the com any has an e<cellent and well lanned &inances" A com any with a negative working ca ital has a &aster collection eriod and a slower ayment eriod"

64

.hrough this managerial e&&iciency the com any is able to generate good ro&its and ay o&& good dividends to its shareholders; thereby kee ing them ha y"

Working Capital !ritannia Indu(trie( Ltd&


8!! :!! (!! $!! ! ($-9' $!!( $!!' $!!$ $!!" %(:-:& &9$-$" $&:-9: &"-&% $!!!

4ritannia #ndustries Ltd" working ca ital was on an increasing ste since %$$$ till %$$'; when &inally the com any realiAed it had to do something to control its blockage o& &ree cash in the current assets" .hereby through its managerial skills and e&&icient &unctioning the com any reduced its working ca ital &rom Rs 7*/"/5 crores in %$$%C%$$' to Rs *%"9' crores in &inancial year %$$'C%$$*; a decline o& almost 9*J"

65

Working Capital O5 "e(tle India Ltd&


! #&!! #"!!! #"&!! #$!!! #$&!! #'!!! #$&88-': $!!( $!!' $!!$ $!!" $!!! #"'88-&' #%('-8" #'"%-%( #%(&-"$

.he above gra h dis lays the working ca ital o& Bestle #ndia Ltd"; which has been negative sine the year %$$$C%$$!" #n the &inancial year %$$'C%$$* the working ca ital o& the com any was Rs G!'88"5' millions and in the year it %$$'C %$$* it &urther declined to Rs G%588"5/ millions; i"e" its working ca ital almost doubled &rom %$$' to year %$$*" A brilliant and e&&icientE working and managerial scenario is de icted through the working ca ital o& the com any"

66

Working Capital O5 Mari+o Indu(trie( Ltd&


"!!! 8!! :!! (!! $!! ! 8&"-"" 8$%-:% &9(-8: (::-88 (9(-$$

$!!(

$!!'

$!!$

$!!"

$!!!

.he gra h shown de icts the working ca ital &rom year %$$$C %$$* &or 3arico #ndustries Ltd" another renowned -3(2 (om any" .he working ca ital o& the com any has been increasing continuously; showing that the com any is blocking its cash available in the current assets or is incurring large bad debts" .he management o& the com any needs to look into the matter and im rove u on the working ca ital"

67

All the above gra hs show that how the com any manages its &unds to secure to osition in the world" .his is what 1abur #ndia has done" 4y bringing down its working ca ital to a negative &igure and through an e&&icient

management it has become the -O5R.+ LAR29S. -3(2 (om any"

MEAS3REMENT OF WORK(NG CAP(TAL EFF(C(ENC4


.he cash conversion cycle is a measure o& working ca ital e&&iciency; o&ten giving valuable clues about the underlying health o& a business" .he cycle measures the average number o& days that working ca ital is invested in the o erating cycle" #t starts by adding days inventory outstanding ?1#O@ to days sales outstanding ?1SO@" .his is because a com any QinvestsQ its cash to ac8uireHbuild inventory; but does not collect cash until the inventory is sold and the accounts receivable are &inally collected" Receivables are essentially loans e<tended to customers that consume working ca italE there&ore; greater levels o& 1#O and 1SO consume more working ca ital" +owever; day0s ayables outstanding ?1)O@CCwhich

68

essentially re resent loans &rom vendors to the com anyCCare subtracted to hel o&&set working ca ital needs" #n summary; the cash conversion cycle is measured in days and e8uals D(O C DSO D DPO "7orking ca ital accounts also tell you about the o erational e&&iciency o& the com any" .he length o& the cash conversion cycle ?1SOP1#OC1)O@ tells you how much working ca ital is tied u in ongoing o erations" And trends in each o& the daysC outstanding numbers may &oretell im rovements or declines in the health o& the business" NEGAT()E WORK(NG CAP(TAL AD)ANTAGE5 A negative working ca ital is a sign o& managerial e&&iciency in a business with low inventory and accounts receivable ?which means they o erate on an almost strictly cash basis@" 1abur #ndia Limited has a negative working ca ital Rs C7$"%5 (rores in the &inancial year %$$*C%$$5 which shows that the com any is doing e<tremely good in controlling its cash &lows" #t has e&&icient &inancial management through which it has enabled in bringing down the 7orking (a ital &igure to a negative one" L(M(TAT(ON5 #n any other situation; it is a sign a com any may be &acing bankru tcy or serious &inancial trouble" So having a negative 7orking (a ital may rove a 4oon or 4ane &or the (om any"

69

(+A).9RC5

ABAL,S#S AB1 #B.9R)R9.A.#OB


70

RAT(O ANAL4S(S
-inancial ratio analysis is the calculation and com arison o& ratios which are derived &rom the in&ormation in a com any>s &inancial statements" .he level and historical trends o& these ratios can be used to make in&erences about a com any>s &inancial condition; its o erations and attractiveness as an investment" -inancial ratio analysis allows com arison o& one industryH&irm to another" Since &inancial ratio analysis looks at relationshi s inside the industryH&irm; an industryH&irm o& one siAe can be directly com ared to a second industryH&irm ?or a collection o& industriesH&irms@; which may be larger or smaller or even in a di&&erent business" #t is a method o& com arison not de endent on the siAe o& either industryH&irm" #t rovides a broader basis &or com arison than to raw numbers" #t is im erative to note the im ortance o& the ro er conte<t &or ratio analysis" Like com uter rogramming; &inancial ratio is governed by the 2#2O law o& Q2arbage #n"""2arbage OutRQ A cross industry com arison o& the

71

leverage o& stable utility com anies and cyclical mining com anies would be worse than useless" 9<amining a cyclical com any>s ro&itability ratios over less than a &ull commodity or business cycle would &ail to give an accurate longCterm measure o& ro&itability" 5sing historical data inde endent o& &undamental changes in a com any>s situation or ros ects would redict very little about &uture trends" 7e can use ratio analysis to try to tell us whether the businessD C !" is ro&itable %" has enough money to ay its bills '" could be aying its em loyees higher wages

*" is aying its share o& ta< 5" is using its assets e&&iciently /" has a gearing roblem 7" is a candidate &or being bought by another com any or investor and more; once we have decided what we want to know then we can decide which ratios we need to use to answer the 8uestion or solve the roblem &acing us" 7orking ca ital management is concerned with making sure we have e<actly the right amount o& money and lines o& credit available to the business at all times (ash is the li&eCblood o& any business; no matter how large or small" #& a business has no cash and no way o& getting any cash; it will have to close down" -ollowing on &rom this we can see that i& a business has no idea o& its li8uidity and working ca ital osition; it could be in serious trouble"

72

(nterpretat!on O+ Rat!o$
.he inter retation o& ratios; as a tool o& analysis; lies in its ro er inter retation by the &inancial analyst" .here are &our di&&erent method su lied &or inter retation o& ratiosD C .he individual ratio by itsel& may convey a signi&icant meaning o& the related items; &or instance; i& the current ratio consistently &alls below one; it may reveal the im ending &inancial solvency o& the concern; which only mean that the current assets o& the units are not even su&&icient to meet current liabilities"

73

.aking into analysis a grou o& related ratios in su&&icient number can e&&ect the inter retation o& ratios" 4y com ilation and analysis o& grou o& inter related ratios; the signi&icance o& ratios can be &ully understood when the same cannot be achieved in isolation; &or instance; the value o& net ro&it ratio is increased by taking the ratio disclosing; the number o& times the ro rietors investment is tuned over in sales every year" .he inter retation o& ratios involves com arison o& ratios o& one business concern with those o& others; which is o&ten re&erred to as Linter &irm com arisonM" .his com arison rovides the valuable in&ormation as in most cases; members o& the same industry &ace similar roblems Ginternal and e<ternal" .he inter retation o& ratios involves making com arison o& ratios o& the unit over a eriod o& time" 4y this; the same ratio or a grou o& related ratios o& a business concern is com lied and evaluated over a eriod o& years"

Cla$$!+!cat!on O+ Rat!o$
-inancial ratio analysis grou s the ratios into categories; which tell us about di&&erent &acets o& a com any>s &inances and o erations" An overview o& some o& the categories o& ratios is given belowD C Leverage RatiosC.hese ratios re&er to the use o& debt &inance" .hese ratios are calculated to determine the ro ortion o& debt in total &inancing" 1ebt ca ital is a chea er source o& &inanceE it is also a riskier source o& &inance" .hese ratios also hel in assessing the risk arising &rom the use o& debt ca ital" Li8uidity RatiosC these ratios give a icture o& a com any>s shortC term &inancial situation or solvency" #t measures the &irm0s ability
74

to meet its current obligations" .hese ratios are generally based on relationshi between current assets and current liabilities" )ro&itability RatiosC these ratios measure the ro&itability o& the concern" .he management o& the &irm is eager to measure the o erational e&&iciency o& the concern to show how best it has managed the &inancial resources o& the concern" )ro&its rovide the money &or re ayment o& debt" Activity ratiosH.urnover ratiosC these ratios are calculated to evaluate the e&&iciency; with which the &irm manages and utiliAes its assets" .hey also indicate the s eed with which assets are being converted or turned over into sales" 7ith the hel o& these ratios a ro er balance between sales and assets are managed well"

L(A3(D(T4 RAT(OS
C#rrent Rat!o 1e&initionD .he (urrent Ratio e< resses the relationshi between the &irm0s current assets and its current liabilities" .he current ratio is also known as the working ca ital ratio and is normally resented as a real ratio" -ormulaD (urrent Assets

75

(urrent Liabilities

$ "-& " !-& !


1abur +ll

As; current ratio o& %D! is considered satis&actory ".he above gra h shows that (5RR9B. none o& RA.#O the com anies enjoy su&&icient li8uidity and there is a shortage o& "-8 working ca ital" "-:"

!-%

!-9%

"-!$ !-:"

4ritannia

(adbury

3arico

Bestle

AnalysisD .he above gra h is giving a icture o& shortCterm &inancial soundness o& various com anies" As a normal rule; (urrent assets should be twice the (urrent liabilities" A very high ratio will result in idleness o& &unds and there&ore is not a good sign"

76

Suick ratio 1e&initionD 3easures assets that are 8uickly converted into cash and they are com ared with current liabilities" .his ratio realiAes that some o& current assets are not easily convertible to cash e"g" inventories" .he 8uick ratio also re&erred to as acid test ratio" -ormulaD (urrent assetsCStockC)re aid (urrent Liabilities

S5#(I RA.#O " !-8 !-: !-( !-$ ! !-9 !-(( !-&$ !-(( !-$ !-88

Da04r

7ll

Britannia Cad04ry +ari5o

;estle

AnalysisD .his ratio shows li8uidity o& the business in real sense" .he standard ratio is !D!; i"eE li8uid assets should be e8ual to current liabilities" .his ratio e<amines the ability o& the business to cover its shortCterm obligations &rom its L8uickM assets only ?i"e" it ignores stock@" .he above gra h de icts that out o& the various com anies only (adbury is the com any whose li8uidity osition is better as com ared to other com anies but still none o& the com anies is able to achieve the standard ratio o& !D!"and are not able to meet their obligations relying solely on li8uid assets"

77

PROF(TAB(L(T4 RAT(OS
2ross ro&it ratio 1e&initionD #t shows the relationshi between gross ro&it and net sales" .his ratio shows the margin o& ro&it on sales" -ormulaD 2ross )ro&it < !$$ Bet Sales

2ROSS )RO-#. RA.#O

$& $! "& "! & !

$'-"$ "&-% "(-': "$-%& 8-%8

"9-&(

1abur

+ll

4ritannia

(adbury

3arico

Bestle

AnalysisD 2ross ro&it ratio reveals ro&itCearning ca acity o& the business with re&erence to its sales" .he true e&&iciency o& the business cannot be understood by gross ro&it because ro&itability may be lesser; where as gross ro&it is more" .he above gra h shows that +ll is having the highest gross ro&it ratio among the entire com anies i"e%'"!%J"

78

Bet ro&it ratio 1e&initionD #t shows the relationshi between net ro&it and net sales" #t shows the o erational e&&iciency o& the business" -ormulaD Bet )ro&it < !$$ Bet Sales

B9. )RO-#. RA.#O

$& $! "& "! & !

$'-%8 "9-&% "&-$( "(-%8 "'-!% 9-!&

1abur

+ll

4ritannia

(adbury

3arico

Bestle

AnalysisD Bet ro&it ratio is a widely used measure o& er&ormance and is com arable across com anies in similar industries" .he &act that a business works on a very low margin need not cause alarm because there are some sectors in the industry that work on a basis o& high turnover and low margins; &or e<am les su ermarkets and motorcar dealers" 7hat is more im ortant in any trend is the margin and whether it com ares well with similar business ".he above gra h shows that the highest net ro&it ratio is &or the com any +LL which shows that this com any enjoys higher net ro&its"

79

Bet )ro&it .o -i<ed Assets Ratio 1e&initionD #t shows the relationshi o& net ro&it to &i<ed assets -ormulaD Bet )ro&it 4e&ore #nterest And .a< Bet -i<ed asset

B9. )RO-#. C -#T91 ASS9.S RA.#O

$ "-& " !-& !


1abur

"-%& "-(9 "-!" !-(& !-%9 !-9%

+ll

4ritannia

(adbury

3arico

Bestle

AnalysisD Bet ro&it to &i<ed assets ratio indicates; whether &i<ed assets are being ro erly used or not" #t will be in the &avor o& business; i& the ratio is higher" .he above gra h shows that +ll is having the highest net ro&it to &i<ed assets ratio among the entire com anies" #t shows that +LL is able to utiliAe the &i<ed assets e&&ectively"

80

Return On (a ital 9m loyed Ratio 1e&initionD #t indicates the relation o& net ro&it with ca ital em loyed in the business" Bet ro&it &or calculating return on investment will mean the net ro&it be&ore interest; ta< and dividend" (a ital em loyed means long term &unds" 3easures the income earned on the invested ca ital" -ormulaD Bet )ro&it 4e&ore #nterest; .a< And 1ividend < !$$ (a ital 9m loyed

R9.5RB OB (A)#.AL 93)LO,91 RA.#O

8! :! (! $! !
1abur

:!-' (8-:% '(-:8 "%-!& ''-%9 ""-:&


3arico Bestle

+ll

4ritannia

(adbury

AnalysisD .his ratio measures; how e&&ectively the ca ital em loyed in the business is used" #t shows the earning ca acity o& the net assets o& the business" .he ratio judges the er&ormance o& the business" .his is one o& the most im ortant ro&itability ratios" .he above gra h shows that +ll is having the highest return on ca ital em loyed ratio and 1abur the second highest ratio" .here&ore +ll have the highest earning ca acity o& the net assets o& the business"

81

Return On 98uity ca ital Ratio 1e&initionD .his ratio measures the ro&itability o& the ca ital invested in the business by e8uity shareholders" #t is the relationshi between net income a&ter ta<es; interest and dividend or re&erence shareholders" -ormulaD Bet #ncome A&ter #nterest; .a< And 1ividend < !$$ 98uity Shareholders &unds
R9.5RB OB 9S5#., (A)#.AL RA.#O

" !-8 !-: !-( !-$ !


1abur

!-8$ !-&8 !-$% !-""


+ll 4ritannia (adbury 3arico

!-%8

!-'$

Bestle

AnalysisD As the business is conducted with a view to earn ro&it; return on e8uity ca ital measures the business success and marginal e&&iciency" .he above gra h de icts that +ll is more success&ul in carrying out business activities as com are to other com anies; as +ll is having the highest return on e8uity ca ital ratio"

82

LE)ERAGE RAT(OS
.otal 1ebts Ratio 1e&initionD .his ratio shows the relationshi between e<ternal and internal e8uity" 9<ternal e8uity means both long and short term outsiders &unds" #t consists o& both current and nonCcurrent creditors liabilities" -ormulaD 9<ternal 98uity #nternal 98uity
.O.AL 194.S RA.#O

$ "-& " !-& !


1abur

"-8

"-9

!-8% !-(9 !-'9 !-&(

+ll

4ritannia

(adbury

3arico

Bestle

AnalysisD .he above gra h shows that +ll have highest total debts ratio and (adbury have the lowest total debts ratio"

83

1ebt 98uity Ratio 1e&initionD .he ratio establishes relationshi between longCterm loans and owners &unds" 1ebt here in the ratio means long term loans" -ormulaD Long .erm Loan Shareholder0s -und

194. 9S5#., RA.#O

!-( !-' !-$ !-" !


1abur

!-' !-$( !-!%

!-!'
+ll 4ritannia (adbury

!-!&
3arico

!-!$
Bestle

AnalysisD .he ideal ratio acce ted is %D!;meaning that longCterm liabilities o& the business should be two times o& shareholders &unds" +igher debt e8uity ratio shows lesser margin &or longCterm lenders" .his ratio indicates to what e<tent the &irm de ends on outsiders &und &or e<istence" .he above gra h de icts that all the com anies have ratio less than $"5; which shows lower higher margin &or log term lenders; as debt e8uity ratio is too low &or all the com anies"

84

#nterest coverage ratio 1e&initionD .his ratio shows how many times the ro&it covers the interest" .his ratio ascertains whether the com any is ca able o& meeting interest on the loans easily out o& ro&its or not" -ormulaD Bet )ro&it 4e&ore #nterest And .a< -i<ed #nterest (harges
#B.9R9S. (O69RA29 RA.#O

:! &! (! '! $! "! !

(9-& $8-!9 '(-"( $%-!& $%-': $8-&:

1abur

+ll

4ritannia

(adbury

3arico

Bestle

AnalysisD .his ratio shows the margin o& cover to lenders o& the com any" #t is always derivable to have ro&it more than the interest ayable" #n case the ro&it is either e8ual or lesser than the interest; the osition will be unsa&e and it will show that nothing is le&t &or the shareholders and the osition o& the lender is also unsa&e" .he net income o& the com any should be ideally / or 7 times o& the &i<ed interest charges" .he above gra h de icts that the lenders o& the Bestle (om any have su&&icient margin o& cover as com ared to other com anies" All the com anies are com etent enough to make the ayment o& interest out o& its current income"

85

-i<ed Assets Ratio 1e&initionD .he ratio shows the relationshi between longCterm &unds and &i<ed assets" #t has been an established business olicy that &i<ed assets should be urchased out &rom longCterm &unds" -ormulaD Long .erm -unds Bet -i<ed Assets

-#T91 ASS9.S RA.#O

( ' $ " !
1abur +ll

'-: $-8 "-8 $-% $-" !-8

4ritannia

(adbury

3arico

Bestle

AnalysisD .he ratio indicates s the longCterm &inancial osition o& the business it also assesses; whether investments have been ro erly made or not" .he ideal ratio must be more than one" #& it is lesser than one it will mean that the business has been &inancing the urchase o& &i<ed assets out o& working ca ital; which is a wrong olicy" .he above gra h de icts that all the com anies have &i<ed assets ratio more than one e<ce t Bestle; which shows that all the com anies are able to make good investments but Bestle is not able to make good investments"

86

1ebts .o .otal -und Ratio 1e&initionD .he ratio shows the relationshi between total liabilities and total assets o& the business" -ormulaD .otal Outside Liabilities .otal Assets
194.S .O .O.AL -5B1 RA.#O

$ "-& " !-& !


1abur +ll 4ritannia (adbury 3arico

"-8 "-" !-(' !-(& !-'9 !-&"

Bestle

AnalysisD Solvency is a state; where the com any is su osed to be &inally sound and ca able o& meeting its liability out o& its assets" .he above gra h de icts that all the com anies whose ratio is less than one are su osed to be solvent i"e" 1abur; 3arico; 4ritannia; (adbury and the com anies which are having ratio more than one i"e" +ll and Bestle shows that the com anies will not be able to meet their liabilities" #t shows the &inancial unsoundness and the state o& robable insolvency"

87

)ro rietary Ratio 1e&initionD .his ratio shows the relationshi between ro rietor0s &unds and total assets" -ormulaD )ro rietors -und .otal Assets

)RO)R#9.AR, RA.#O

"-$ " !-8 !-: !-( !-$ !

!-9 !-&

!-9"

!-98

!-9&

!-9%

1abur

+ll

4ritannia

(adbury

3arico

Bestle

AnalysisD .his ratio is very im ortant &or the creditors; because they know the share o& ro rietors &und sin the total assets and satis&y how &ar their loan is secured" .he higher the ratio; the more sa&ety will be to the creditors"5$J is su osed to be the satis&actory ratio &or the creditors" Lesser than 5$J is the sign o& risk &or creditors" .he above gra h de icts that all the com anies have ratio more than 5$J which shows that the loan o& all the creditors is secured"

88

ACT()(T4 RAT(OS
Stoc. T#rno:er Rat!o 1e&initionD .he ratio measures the number o& times a com any sells its
inventory during the year" A high stock turnover ratio indicated that the roduct is selling well" .he stock turnover ratio should be done by inventory categories or by individual roduct"

-ormulaD (ost O& 2oods Sold Average Stock

S.O(I .5RBO69R RA.#O

$! "& "! & !


1abur +ll 4ritannia (adbury 3arico Bestle

"(-( 9-9 8-' 9-"% 9-$9 "!-88

AnalysisD +igher ratio is always bene&icial to the concern" Lower ratio indicates that the stock is blocked and not immediately sold" #t shows the oor er&ormance o& the business" .he above gra h de icts that all the com anies have a good stock turn over ratio; which shows that all the com anies have maintained an o timum 8uantity o& stock; so that roduction work may be carried down smoothly"

89

7orking (a ital .urnover Ratio 1e&initionD .his ratio shows the relationshi between working ca ital and sales" .he ratio shows the number o& times the working ca ital results; in sales" -ormulaD Bet Sales Or (ost O& Sales 7orking (a ital

7ORI#B2 (A)#.AL .5RBO69R RA.#O

"(! "$! "!! 8! :! (! $! ! #$! #(!


1abur +ll

"$:-$

%"-$%

9-$
4ritannia (adbury 3arico Bestle

#":-(

#8-&

#$%-(

AnalysisD .his ratio is used to assess the e&&iciency with which the working ca ital has been utiliAed in a business" .he higher the working ca ital turnover ratio; the more &avorable it is &or the &irm" .he above gra h de icts that +ll; 1abur and Bestle have negative working ca ital turnover ratio whereas 3arico; 4ritannia and (adbury have ositive working ca ital turnover ratio"
90

-i<ed Assets .urnover Ratio 1e&initionD .his ratio shows the relationshi between sales and &i<ed assets" #t ensures that investment in the assets have been judicious or not" -ormulaD Bet Sales Or (ost O& Sales -i<ed Assets

-#T91 ASS9.S .5RB O69R RA.#O

8 : ( $ !

%-( &-': &-'( $-:" &-%9 $-9$

1abur

+ll

4ritannia

(adbury

3arico

Bestle

AnalysisD -i<ed assets are used in the business &or roducing goods to be sold" .he e&&ective utiliAation o& &i<ed assets will result in increased roduction and reduced cost" #& the ratio is too high; it re&lects that e &irm is overtrading on its assets" On the other hand; i& the ratio is low; it only re resent that the &irm has made e<cessive investments in &i<ed assets" .he above gra h shows that all the com anies have maintained a balanced ratio between net sales and &i<ed assets; which shows e&&ective utiliAation o& &i<ed assets"
91

1ebtors .urnover Ratio 1e&initionD .his ratio shows the relationshi between credit sales and average debtors" .his ratio indicates the e&&iciency with which debts are collected" -ormulaD (redit Sales Average 1ebtor

194.OR .5RBO69R RA.#O

"!! 8! :! (! $! !
1abur +ll 4ritannia (adbury 3arico

8$-!" :!-9' $:-(' :-'(


Bestle

':-:(

$9-!(

AnalysisD #t will be in the interest o& the business; i& the ratio is higher which will indicate that debts are collected 8uickly" .he above gra h shows that Bestle has the highest debtor turn over ratio; which shows that Bestle is able to collect the debts 8uickly as com ared to other com anies"

92

C'APTER-E

(OB(L5S#OB

93

)ro&itability )ositionC)ro&itability re&ers to the ability o& the business to earn ro&it" #t shows the e&&iciency o& the business" )ro&itability osition o& a com any can be judged by the ro&itability ratios o& the com any as these ratios measure the ro&it earning ca acity o& the com any" .he inter &irm com arison shows that +LL is the com any which is having the best ro&itability osition among all the com anies with the hel o& which we can conclude that +LL is having a good ro&it earning ca acity "

Li8uidity or short term &inancial ositionCli8uidity shows the &inancial soundness o& the business and also whether the current assets o& the com any are su&&icient to meet its short term liabilities" #nter &irm com arison shows that all the com anies are having current ratio less than %D! which shows that the short term &inancial osition o& the is not su osed to be very sound" #n the same way; standard li8uid ratio sis !D! ;the inter &irm com arison shows that only (adbury is the com any which has better ca acity to meet its current obligations and along with (adbury;3arico is also having a better li8uidity osition than other com anies"

94

Solvency or long term &inancial ositionC LSolvencyM means the ability o& the business to meet its outside liabilities and by solvency osition we mean the long term &inancial osition o& the com any" #nter &irm com arison shows that all the com anies are having a good solvency osition which can be determined by the di&&erent ratios used to calculate the solvency osition"

.urnover ositionC.urnover means LsalesM which has direct relationshi with the er&ormance o& the business" 3ore sales means the business is more active and has better er&ormance; lesser sales shows inactivity o& the business; oor er&ormance and lesser roductivity" .he inter &irm com arison shows that all the com anies have a good turnover which shows that all the com anies are er&orming well; but among all the com anies BestlK0s turnover is more than other com anies"

95

C'APTER-F

A))9B1#(9S

96

DAB3R>S F(NANC(ALS
DABUR'S FINANCIALS !"T #$ %s&'%(%)*+

PROFIT & LOSS ACCOUNT SALES

1998-99 9"(-%%

1999-00 "!($-&9

2000-01 "" ::-(%

2001-02 "":'-"9

2002-0 "8'-8! "!(8-&! '-(! (-9! $&-"! "!9-:! "&-&' 8!-!! "'-"! %$-!! $-&! "-(!

200 -0! 200!-0"

""(8-!! "$:8-%$

OTHER INCOME

"%-($

'(-"9

"8-8%

"'-8%

""-!!

""-&!

PBDIT

9%-:&

"$%-%!

"'%-$9

"$!-(&

"'8-"9

"8%-9$

PBT

&"-:!

8"-$9

8&-"%

%&-&"

""'-(!

":&-!'

PAT

&!-"!

%%-('

%%-9$

:(-((

"!"-$! '-&! $-!!

"(8-!' &-"% $-&!

EPS DPS

"-8! !-&!

$-%! "-!!

$-%! "-!!

$-'! !-&!

97

BALANC# S$##T
$)T ,-('. $)T /(%.#$0 '!1#T!-

1998-99 1999-00 2000-01 2001-02 2002-0

200 -0!

200!-0"

$'8-&" $&!-8' $($-8% $((-($ $!(-:: "&(-9( "9"-:! $:!-$: '!(-!" $'&-'$ $:"-$8 8"-:! ""$-'! #":-9! #%!-$&

$)T /(%T2

$&"-:: '"$-99 '&(-8$ '9:-89 "8&-8! $$$-9! $:$-!! ''8-!%

-(!$ 34$5*

$9(-9' $89-!$ "9:-"! $"'-&:

$8-'! 8"-%! '9-8! (8-:$

98

B(BL(OGRAP'4
.he &ollowing sources have been sought &or the re aration o& this re ort"

BOOKS -inancial 3anagement

A3T'ORBP3BL(CAT(ON Ihan and Fain

OT'ER SO3RCES-Other sources include annual re ort o& 1abur #ndia ltd";+industan lever ltd";articles &rom news a ers like 9conomic times; 4usiness world; .imes o& #ndia?business section@;magaAines like 4usiness #ndia; 4usiness world; 4usiness today" WEBS(TES
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99

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