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WORKING CAPITAL MANAGEMENT IN DABUR

PREFACE
MBA is a stepping-stone to the management carrier and to develop
good manager it is necessary that the theoretical must be
supplemented with exposure to the real environment. Theoretical
knowledge just provides the base and its not sufficient to produce a
goodmanager thats why practical knowledge is needed. Therefore the
researchproduct is an essential requirement for the student of MBA .
This research project not only helps the student
to utilize his skills properly learn fieldrealities but also provides a
chance to the organization to find out talent among
the budding managers in the
very beginning. In accordance with therequirement of MBA
course I have Project work on on the topicA STUDY ON WORKING
CAPITAL MANAGEMENT OF DABUR . The main objective of the
research project was to study the two instruments and make a detailed
comparison of the two.
For conducting the research project sample size of 30 customers
was selected. The information regarding the project research was
collected through the questionnaire formed by me which was filled by
thecustomers there.In the growing global competition, business has
taken a new shape in
theworld. Todays Manager has to understand the uncertainty of busine
ssenvironment to cope with the situation. Dissertation for each and eve
ry student of SVN is an essential part of completion at the end of 1 st
year of the course. The prime objective of this summer training to
familiar with real life business environment and apply the theoretical
concept of business into realityand know how much theory is
applicable in day to day business activity.
Italso sharpens their knowledge, hones their analytical and other busin
essacumen and develops better appreciation of the practical problems
of business, especially from the management point of view. Moreover
the experience acquired by student helps to decide the futureprofessio
nal career. As per the module is concern I underwent in a

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WORKING CAPITAL MANAGEMENT IN DABUR

projectentitled A STUDY ON WORKING CAPITAL MANAGEMENT


OF DABUR

HEERENDRA SINGH DANGI


MBA

IIIRD SEM.

ACKNOWLEDGEMENT
Preparing a project of this nature is an arduous task and I
was fortunate enough to get support from a large number o
persons. I wish to express my deep sense of gratitude to all those
who generously helped in successful completion of this report by
sharing their invaluable time and knowledge.
It is my proud and previledge to express my deep regards to
Respected

Head of Department

Dr.Pramesh

Gautam,

Department of Business Management , SWAMI VIVEKANAND


UNIVERSITY SAGAR for allowing me to undertake this project.
I feel extremely exhilarated to have completed this project
under the able and inspiring guidance of He rendered me all
possible help me guidance while reviewing the manuscript in
finalising the report.
I also extend my deep regards to my teachers , family
members , friends and all those whose encouragement has
infused courage in me to complete to work successfully.
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WORKING CAPITAL MANAGEMENT IN DABUR

HEERENDRA SINGH DANGI


MBA

IIIRD SEM.

DELCLARATION BY THE CANDIDATE


Date :

I declare that the project report titled A STUDY ON


WORKING

CAPITAL

MANAGEMENT

OF

DABURon

Market

Segmentation is nay own work conducted under the supervision


MISS

PRIYANKA

CHOURASIYA

Department

of

Business

Management, SWAMI VIVEKANAND UNIVERSITY SAGAR To the best


of my knowledge the report does not contain any work , which
has been submitted for the award of any degree , anywhere.

HEERENDRA SINGH DANGI


MBA

IIIRD SEM.

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WORKING CAPITAL MANAGEMENT IN DABUR

CERTIFICATE

The project report titled


CAPITAL

MANAGEMENT

OF

A STUDY ON WORKING

DABUR

been

prepared

by

HEERENDRA SINGH DANGI MBA IIIRD SEM. under the guidance


and supervision of

MISS PRIYANKA CHOURASIYA for the

partial fulfillment of the Degree of MBA .

Signature of the

Signature of the

Signature of the

Supervisor

Head of the

Examiner
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WORKING CAPITAL MANAGEMENT IN DABUR

Department

INDEX
Declaration
Acknowledgement
Preface
Index
1. INTRODUCTION

a) About DABUR
b) Overview of Financial Analysis
2. OBJECTIVE OF STUDY
3. VISION
4. INTRODUCTION OF WORKING CAPITAL
5. RESEARCH METHODOLOGY
6. INTERPRETATION & ANALYSIS
a) Data at a glance
b) Data Interpretation and analysis
6. RECOMMENDATIONS
7. CONCLUSION
8. BIBLIOGRAPHY
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WORKING CAPITAL MANAGEMENT IN DABUR

COMPANY PROFILE
Dabur India Limited came into existence over 100 years ago in 1884 in Calcutta. The
founder of Dabur India Limited-Dr.S.K.Burman (1856-1907) was a physician who brought
Ayurvedic medicines for the masses of Bengal. His off quoted dictum is the guiding spirit
behind Dabur even today:
"What is the life worth which cannot bring comfort to others"
And the Vision of DIL is:
"Dedicated to the health and well being of every household"
Dabur India Limited came into existence over 100 years ago in 1884 at Calcutta. The founder,
Dr.S.K.Burman, was a practicing allopathic doctor. At that time Malaria, Cholera and Plague
were the common diseases. He was a physician who brought ayurvedic medicines to the
masses of Bengal. Initially established as a proprietary firm for the manufacture of chemicals
and ayurvedic drugs it was later on 19th November 1930 incorporated as private limited
company. Late Shri C.L.Burman, son of late Dr S.K. Burman and his son late Shri P.C.Burman
in the name of Dr S.K.Burman Pvt.Ltd. to expand the operations by setting up production
facilities at Garia and Narendrapur, West Bengal and Daburgram, Bihar.
Dabur (Dr.S.K.Burman) Pvt. Ltd. was merged with Vidogum and Chemicals Ltd. w.e.f. 1st
July1985 and the amalgamated company was renamed DABUR INDIA LIMITED and a fresh
certificate of incorporation was issued to that effect. In 1970,the bulk of manufacturing facilities
were shifted from West Bengal to Faridabad in Haryana.

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In 1975,vidogum and chemicals were incorporated in technical collaboration with Unipekin


AG (Switzerland) for the manufacture of edible grade and industrial grade Guargum powder at
Alwar in Rajasthan.
In 1977,a modern automated plant was set up in Sahibabad (U.P.) for the manufacture of
Chyawanprash, Asavrishthas, Hair oil, Tooth powders, Hajmola, and other Ayurvedic
specialties. Certification for production of toiletries and food grade products was issued on
13th October 1986 by the registrar of Delhi and Haryana to the company, Dabur Private
Limited, a closely held Public Limited Company.
It was incorporated as a Private Ltd. Company in the name of Dabur (Dr. S.K. Burman)
Pvt. Ltd. From a humble beginning in 1884, a manufacture of traditional medicine in Calcutta,
Dabur has come a long way to become a multifaceted multinational, multi-product, modern
Indian corporation with a global presence. It now enjoys the distinction of being the 2nd
largest FMCG Company and is praised to become a true Indian Multinational.
The main plant was set up in Sahibabad (U.P.) in 1977 for manufacturing of
Chyawanprash, hair oil, tooth powder, hajmola and other ayurvedic medicines and food
products etc. Dabur's main line of business is in the sphere of Health care, Personal care and
Beauty care. Its strength lies in natural and herbal preparations.
Dabur's corporate philosophy has always been ahead of its time. The founder's initial
success was mainly due to his direct main campaigns- a technique that became very popular
nearly a century later. The company was one of the earlier Indian companies to have fully
equipped R & D lab as early as in 1919. Today, the company has its own mainframes and
computers are a way of life here.
Dabur is also an ISO 9002 certified company. The certification was obtained in 1995 by
SGS YARSLEY international services Limited U.K. Dabur's revenue today exceed Rs.800
crores with plans to achieve Rs.2, 000 crores by year 2003. Dabur has 34,000 shareholders
with market capitalization of over Rs.1, 400 crores.
Dabur has 11 manufacturing plants in India and Nepal and a licensee in the Middle East.
It has manufacturing base in Egypt also. The company has over 4,000 employees with around
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1,500 looking after sales and marketing functions.


The Indian market is being served through a transactional network of sales offices and
carrying and forwarding agents. The company has its offices in London, New York and
Moscow. Dabur products are being exported to around 50 countries. Dabur portfolio is
exceeding 500 products of FMCG and health care products.
The Board of Directors of Dabur India Limited (DIL) met on July 23, 2003 to consider
the unaudited financials of the company for the first quarter that ended on June 30, 2003.
Company has recorded a growth of 36 per cent in its net profit per cent growth in its turnover
during April-June 2003.
The turnover of DIL, during the three-month period, has increased to Rs 266 crore to
Rs 300 crore while the net profit has increased 11.5 crore to Rs 16 crore during the same
period.
The first quarter results should not be annualized as sales usually improve in
subsequent quarters.

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OBJECTIVE OF STUDY

To analyze the financial position of DABUR


To analyze the liquidity position of DABUR

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VISION
"Dedicated to the health and well being of every house hold."
Dabur is a company with a set of established business values, which direct it's functioning as
well as all its operations. The guiding forces for Dabur are the words of its founder, Dr.S. K.
Burman, "what is that life worth that can not give comfort to others." The Company offers its
customers, the products to suit their needs and give them good values for money. The company is
committed to follow the ethical practices in doing business. At Dabur, nature acts as not only the
source of raw materials but also an inspiration and the company is committed to product the
ecological balance.

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PRINCIPLES

OWNERSHIP:

This is our company. We accept responsibility and accountability to meet business needs.

PASSION FOR WINNING:

We all are leaders in our responsibility, with a deep commitment to deliver the results. We are
determined to be the best at doing what matters the most.

PEOPLE DEVELOPMENT:

People are our most important asset. We add value through result- driven training and we
encourage rewards and excellence.

CONSUMER FOCUS:

We have superior understanding of consumer needs and develop products to fulfill their
demands.

TEAM WORK:

We work together on the principle of mutual trust and transparency in a boundary less
organization.

INNOVATION:

Continuous innovation in products and processes and is the base of our success.

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WORKING CAPITAL MANAGEMENT IN DABUR

DABUR OVER THE YEARS


More than a century ago, a young doctor started with a vision to provide innovative and
affordable health care products to Indian masses. Thus, was born an organisation today known
as Dabur India Limited. The twelve hundred crores corporate today started with a small
dispensary at Calcutta, the noble thoughts of Dr.S.K.Burman being the main source of
inspiration behind the project. From that humble beginning, the company has grown into
Indias leading manufacturer of consumer health care, personal care and food products. This
phenomenal progress has seen many milestones, some of which are mentioned below:

1884: Dr.S.K.Burman lays the foundation of what is known as Dabur India Limited. Started
from a small shop at Calcutta, he began a direct mailing system to send his medicines to even
the smallest of villages in Bengal. The brand name Dabur is derived from the words "DA" for
Daktar or doctor and "BUR" from Burman.

1896: As the demand for Dabur products grows, Dr. Burman felt the need for mass production
for some of his medicines. He set up a small manufacturing plant at Garhai near Calcutta.

Early 1900s: The next generation of Burman's take a conscious decision to enter the
Ayurvedic medicines market, as they believe that it is only through ayurveda that the
healthcare needs of poor Indians can be met.

1919: The search for processes to suit mass production of ayurvedic medicines without
compromising on basic ayurvedic principles lead to the setting up of the first Research and
Development laboratory at Dabur. This initiate a pain staking study of ayurvedic medicines as
mentioned in age old scriptures, their manufacturing processes and how to utilize modern
equipment to manufacture these medicines without reducing the efficacy to manufacture these
medicines without reducing the efficacy of these drugs.

1920s:A-manufacturing facility for Ayurvedic Medicines is set up at Narendrapur and


Daburgram. Dabur expands its distribution network to Bihar and northeast.

1936: Dabur India (Dr. S.K.Burman) Pvt.Ltd. is incorporated.

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WORKING CAPITAL MANAGEMENT IN DABUR

1940: Dabur diversifiers into personal care products with the launch of its Dabur Amla Hair
Oil. This perfumed hair oil catches the imagination of the common man and film stars alike
and becomes the largest hair oil brand in India.

1949: Dabur Chyawanprash is launched in a tin pack and becomes the first branded
Chyawanprash of India.

1956: Dabur buys its first computer. Accounts and stock keeping are one of the first
operations to be computerized.

1970: Dabur expands its personal care portfolio by adding oral care products. Dabur Lal Dant
Manjan is launched and captures the Indian rural market.

1972: Dabur shifts base to Delhi from Calcutta. Starts production from a hired manufacturing
facility at Faridabad.

1978: Dabur launches the Hajmola tablets. This is the first time that a classical ayurvedic
medicine is branded from Shudhabardhak bati to Hajmola tablets.

1979: The Dabur Research Foundation (DRF), an independent company is set up to spearhead
Dabur's multi-faceted research. Commercial production starts at Sahibabad. This is one of the
largest and most modern production facilities for ayurvedic medicines in India at this time.

1984: The Dabur brand turns 100 but is still young enough to experiment with new offerings
in the market.

1986: Dabur becomes a public Limited company through reverse merger with Vidogum
Limited, and is re-christened Dabur India Limited.

1989: Hajmola Candy is launched and captures the imagination of children and establishes a
large market share.

1992: Dabur enters into a joint venture with Agrolimen of Spain far manufacturing and
marketing confectionery items such as bubble gums in India.

1993: Dabur set up the oncology formulation plant at Baddi, Himachal Pradesh.

1994: Dabur India Limited comes out with its first public issued at a premium of Rs.85 per
share. The issue is subscribed over 21 times.

1994: Dabur enters the oncology (anti-cancer) market with the launch of Intaxel (Pacitaxel).
Dabur becomes only the second company in the world to launch this product. The Dabur

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WORKING CAPITAL MANAGEMENT IN DABUR

Research Foundation develops the unique eco-friendly process of extracting the drug from the
leaves of the Asian Yew Tree.

1995: Dabur enters into a joint venture with Osem of Israel for food and Bongrain
of France for cheese other dairy products.

1996: Dabur launches Real fruit juices, which heralds the company's entry into the processed
food market.

1997: The foods division is created, compromising of real fruit juices and Homemade
cooking paste to form the core of this division's product portfolio.

1998: Project STARS (Strive To Achieve Record Successes) is initiated by the company to
achieve accelerated growth in the coming years. The scope of this project is strategic,
structural and operational changes to enables efficiencies and improves growth rates.

1998: The Burman family hands over the reins of the company to a professional, Mr. Ninu
Khanna joins Dabur, as the Chief Executive Officer.

1999-2000: Dabur achieves the Rs.1000 crores turnover mark.

2001-2002: Launched Amla Light, new flavors in Real Juices-grapes, guava, apple active,
orange active, homemade pappad, Vatika- an anti-dandruff shampoo.

2002: New launches homemade coconut milk (in south), Tang, Tomato puree, Vatika light.

2003: Dabur achieves Rs.1,232 crores turnover mark with an increase of 6 per cent. Turnover
of FMCG reaches to Rs l048.5crores, which shows a profit of Rs. 72 crores. Turnover of
pharmaceuticals reaches to Rs 184 crores with a profit of Rs.13 crores.

2007: Dabur Foods to merge with Dabur India Ltd.

2008: Growth rate of company is 12.4% to Rs. 1378.85 crores from Rs. 1226.58 crores a year
earlier.

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CORPORATE PHILOSOPHY
Knowledge is the key to growth in today's world. Whatever be the industry, it is the
knowledge, which provides cutting edge to individual and organisations. For more than a century
nature has been a rich source of knowledge for DABUR. Nature has not only gives it the
ingredients for all its products but also has taught it how to create a harmony within and outside
the organisation. Nature has inspired DABUR in all its acts. Ayurveda - the science of life is
based on principles of nature. All ayurvedic preparation has their ingredients derived from nature.
Dabur has converted the healing properties of natural ingredients and the age-old knowledge of
ayurveda into contemporary health care to eliminate health problems of its consumers.
Dabur is committed to expand the reach of its age-old knowledge of ayurveda and Nature
through web. Through web the aim is to overcome the physical boundaries to take ayurvedic way
of life to global frontiers. Dabur India limited understands its responsibility as a corporate house.
It has not only set a sight on increasing turnover and profitability of the company but also on
propagating Ayurveda - The Indian System of Medicine.

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LOCATION OF OPERATIONS
Head office

: Sahibabad, Ghaziabad (U.P.)

Regd. Office

: Asaf Ali Road, New Delhi

Corporate office

: Kaushambi, Ghaziabad (U.P.)

Sales & Marketing: New Delhi


OFFICES:
Chandigarh (H.P.), New Delhi (Delhi), Jaipur (Rajasthan), Kanpur (U.P.), Patna (Bihar), Ahemadabad
(Gujarat), Indore (M.P.), Cuttak (Orissa), Mumbai (Maharashtra), Hydrabad (A.P.), Chennai
(TamilNadu), Bangalore (Kamatka), Kochi (Kerela), Guwahati (Assam), Kathmandu (Nepal), Russia,
U.K.
FACTORY:
Baddi (H.P.), Ghaziabad (U.P.), Alwar (Rajasthan), Daburgram (Bihar), Kalyani&
Narendrapur (West Bengal), Katni (M.P), Birgunj (Nepal), Egypt.
C&F:
Jammu, Chandigarh (HP) Ambala (Punjab), New Delhi (Delhi), Ghaziabad (U.P.), Dehradun (U.P.),
Lucknow (UP), Rachi, Patna (Bihar), Guwahati (Assam), Calcutta (West Bengal), Jaipur (Rajasthan),
Ahemadabad (Gujarat), lndore (M.P.) Raipur (M.P.), Bhubaneshwar (Orissa), Cuttak (Orissa),
Mumbai (Maharashtra), Hydrabad
(A.P.), Chennai (TamilNadu), Bangalore (Karnataka), Cochin (Kerela).

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INTRODUCTION OF WORKING CAPITAL


The net working capital of business is its current assets less its current liabilities.
Current Assets include:

Stock of Raw Material

Work in Progress

Finished Goods

Trade Debtors

Prepayments

Cash Balances

Current Liabilities include:

Trade Creditors

Accruals

Taxation Payable

Dividends Payable

Short term Loans

Every business needs adequate liquid resources in order to maintain day to day cash flows. It
needs enough cash to by wages and salaries as they fall due and to pay creditors if it is to keep
its workforce and ensure its supplies. Maintaining adequate working capital; is not just
important in the short term.

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Sufficient liquidity must be maintained in order to ensure the survival of business in the
long term as well. Even a profitable business may fail if it does not have adequate cash flows to
meet its liabilities as tyhey fall a due. Therefore when business make investment decisions they
must not only consider the financial outlay involved with acquiring the new machine or the
new building etc, but must also take account of the additional current assets that are usually
involved with any expansion of activity .
Increase production tends to engender a need to hold additional stocks of raw material & work
in progress.
Increased sales usually mean that the level of debtor will increase. A general increase in the
firms scales of operation tends to imply a need for greater level of cash.

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THEORY OF WORKING CAPITAL


MEANING OF WORKING CAPITAL:

Capital required for a business can be classifies under two main categories:

Fixed Capital

Working Capital

Every business needs funds for two purposes for its establishments and to carry out day to day
operations. Long term funds are required to create production facilities through purchase of fixed
assets such as plant and machinery, land and building, furniture etc. Investments in these assets
are representing that part of firms capital which is blocked on a permanent or fixed basis and is
called fixed capital. Funds are also needed for short term purposes for the purchasing of raw
materials, payments of wages and other day to day expenses etc. These funds are known as
working capital. In simple words, Working capital refers to that part of the firms capital which is
required for financing short term or current assets such as cash, marketable securities, debtors
and inventories.
CONCEPTS OF WORKING CAPITAL:
There are two concepts of working capital:

Balance Sheet concepts

Operating Cycle or circular flow concept

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BALANCE SHEET CONCEPT:


There are two interpretation of working capital under the balance sheet concept:

Gross Working Capital

Net Working Capital

The term working capital refers to the Gross working capital and represents the amount of funds
invested in current assets . Thus, the gross working capital is the capital invested in total current
assets of the enterprises. Current assets are those assets which are converted into cash within
short periods of normally one accounting year. Example of current assets is:
Constituents of Current Assets:

Cash in hand and Bank balance

Bills Receivable

Sundry Debtors

Short term Loans and Advances

Inventories of Stock as:

Raw Materials

Work in Process

Stores and Spaces

Finished Goods
Temporary Investments of Surplus Funds

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Prepaid Expenses

Accrued Incomes

The term working capital refers to the net working capital. Net working capital is the excess of
current assets over current liabilities or say:
Net Working Capital = Current Assets Current Liabilities.
NET WORKING CAPITAL MAY BE NEGATIVE OR POSITIVE:
When the current assets exceed the current liabilities, the working capital is positive and the
negative working capital results when the current liabilities are more than the current assets.
Current liabilities are those liabilities which are intended to be paid in the ordinary course of
business within a short period of normally one accounting year of the current assets or the
income of the business. Examples of current liabilities are:
CONSTITUENTS OF CURRENT LIBILITIES:

Bills Payable

Sundry Creditors or Account Payable

Accrued or Outstanding Expenses

Short term Loans, Advances and Deposits

Dividends Payable

Bank Overdraft

Provision for Taxation, If does not amount to appropriation of profits

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The gross working capital concept is financial or going concern concept whereas net working
capital is an accounting concept of working capital.

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OPERATING CYCLE OR CIRCULATING CASH FORMAT:


Working Capital refers to that part of firms capital which is required for financing short term or
current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in
current assets keep revolving fast and being constantly converted into cash and these cash flows
out again in exchange for other current assets. Hence it is also known as revolving or circulating
capital. The circular flow concept of working capital is based upon this operating or working
capital cycle of a firm. The cycle starts with the purchase of raw material and other resources.
And ends with the realization of cash from the sales of finished goods. It involves purchase of
raw material and stores, its conversion into stocks of finished goods through work in progress
with progressive increment of labor and service cost, conversion of finished stocks into sales,
debtors and receivables and ultimately realization of cash and this cycle continuous again from
cash to purchase of raw materials and so on. The speed/ time of duration required to complete
one cycle determines the requirements of working capital longer the period of cycle, larger is the
requirement of working capital.

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Receivable conversion period

Raw material storage

(RCP)

conversion period (RMSCP)

Cash received form


Debtors and paid to suppliers
Of raw materials

Sales of finished

Raw materials

Goods

introduced into process

Finished Goods
Produced

Finished goods conversion


Period (FGCP)

Work in process
Conversion period
(WIPCP)

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The gross operating cycle of a firm is equal to the length of the inventories and receivables
conversion periods. Thus,

Where,

Gross Operating Cycle = RMCP + WIPCP +


FGCP + RCP

RMCP = Raw Material Conversion Period


WIPCP = Work in- Process Conversion Period
FGCP = Finished Goods Conversion Period
RCP = Receivables Conversion Period
However, a firm may acquire some resources on credit and thus defer payments for certain
period. In that case, net operating cycle period can be calculated as below:

Net Operating Cycle Period = Gross Operating Cycle Period


Payable Deferral period

Further, following formula can be used to determine the conversion periods.


Raw Material Conversion Period = Average Stock of Raw Material.
Raw Material Consumption per day
Work in process Conversion Period = Average Stock of Work-in-Progress
Total Cost of Production per day
Finished Goods Conversion Period = Average Stock of Finished Goods
Total Cost of Goods sold per day
Receivables Conversion Period = Average Accounts Receivables
Net Credit Sales per day
Payable Deferral Period =

Average Payable
Net Credit Purchase per day

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CLASSIFICATION OR KIND OF WORKING CAPITAL:


Working capital may be classified in two ways:

On the basis of concept

On the basis of time

Om the basis of concept, working capital is classified as gross working capital and net working capital.
The classification is important from the point of view of the financial manager.
On the basis of time, working capital may be classified as:

Permanent or Fixed working capital

Temporary or Variable working capital.

1. PERMANENT OR FIXED WORKING CAPITAL:


Permanent or fixed working capital is the minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. There is always
a minimum level of current assets which is continuously required by the enterprises to carry out
its normal business operations.

2. TEMPRORAY OR VARIABLE WORKING CAPITAL:

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Temporary or variable working capital is the amount of working capital which is required to
meet the seasonal demands and some special exigencies.Varibles working capital can be further
classified as second working capital and special working capital. The capital required to meet the
seasonal needs of the enterprises is called the seasonal working capital.
Temporary working capital differs from permanent working capital in the sense that is required
for short periods and cannot be permanently employed gainfully in the business

IMPORATNCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL:


Working capital is the life blood and nerve centre of a business . just a circulation of a blood is
essential in the human body for maintaining life, working capital is very essential to maintain the
smooth running of a business. No business can run successfully without an adequate amount of
working capital. The main advantages of maintaining adequate amount of working capital are as
follows:

Solvency of the Business

Goodwill

Easy Loans

Cash discounts

Regular supply of Raw Materials

Regular payments of salaries, wages & other day to day commitments.

Exploitation of favorable market conditions

Ability of crisis

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WORKING CAPITAL MANAGEMENT IN DABUR

Quick and regular return on investments

High morals

THE NEED OR OBJECTS OF WORKING CAPITAL:


The need for working capital cannot be emphasized. Every business needs some amount of
working capital. The need of working capital arises due to the time gap between production and
realization of cash from sales. There is an operating cycle involved in the sales and realization of
cash. There are time gaps in purchase of raw materials and production, production and sales,
And sales, and realization of cash, thus , working capital is needed for the following purposes:
For the purchase of raw materials , components and spaces
To pay wages and salaries
To incur day to day expenses and overhead costs such as fuel, power and office expenses
etc.
To meet the selling costs as packing, advertising etc.
To provide credit facilities to the customers.
To maintain the inventories of raw materials, work in- progress, stores and spares and
finished stock.

FACTORS DETERMING THE WORKING CAPITAL REQUIRMENT:


The working capital requirements of a concern depend upon a large number of factors such as
nature and size of the business, the characteristics of their operations, the length of production
cycle , the rate of stock turnover and the state of economic situation. However the following are
the important factors generally influencing the working capital requirements.
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WORKING CAPITAL MANAGEMENT IN DABUR

NATURE OR CHARACTERSTICS OF A BUSINESS:


The nature and the working capital requirement of enterprises are interlinked. While a
manufacturing industry has a long cycle of operation of the working capital, the same
would be short in an enterprises involve in providing services. The amount required also
varies as per the nature, an enterprises involved in production would required more
working capital then a service sector enterprise.

MANAFACTURE PRODUCTION POLICY:


Each enterprises in the manufacturing sector has its own production policy, some follow
the policy of uniform production even if the demand varies from time to time and other
may follow the principles of demand based production in which production is based on
the demand during the particular phase of time. Accordingly the working capital
requirements vary for both of them.

OPERATIONS:
The requirement of working capital fluctuates for seasonal business. The working capital
needs of such business may increase considerably during the busy season and decrease
during.

MARKET CONDITION:
If there is a high competition in the chosen project category then one shall need to offer
sops like credit, immediate delivery of goods etc for which the working capital

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requirement will be high. Otherwise if there is no competition or less competition in the


market then the working capital requirements will be low.

AVABILITY OF RAW MATERIAL:


If raw material is readily available then one need not maintain a large stock of the same
thereby reducing the working capital investment in the raw material stock . On other hand
if raw material is not readily available then a large inventory stocks need to be
maintained, there by calling for substantial investment in the same.

GROWTH AND EXAPNSION:


Growth and Expansions in the volume of business result in enhancement of the working
capital requirements. As business growth and expands it needs a larger amount of the
working capital. Normally the needs for increased working capital funds processed
growth in business activities.

PRICE LEVEL CHANGES :


Generally raising price level require a higher investment in the working capital. With
increasing prices, the same levels of current assets needs enhanced investments.

MANAFACTURING CYCLE:
The manufacturing cycle starts with the purchase of raw material and is completed with
the production of finished goods. If the manufacturing cycle involves a longer period the
need for working capital would be more. At time business needs to estimate the
requirement of working capital in advance for proper control and management. The
factors discussed above influence the quantum of working capital in the business. The
assessment of the working capital requirement is made keeping this factor in view. Each

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constituents of the working capital retains it form for a certain period and that holding
period is determined by the factors discussed above. So for correct assessment of the
working capital requirement the duration at various stages of the working capital cycle is
estimated. Thereafter proper value is assigned to the respective current assets, depending
on its level of completion. The basis for assigning value to each component is given
below:
COMPONENTS OF WORKING CAPITAL

BASIS OF VALUATION

Stock of Raw Material

Purchase of Raw Material

Stock of Work -in- Process

At cost of Market value which is lower

Stock of finished Goods

Cost of Production

Debtors

Cost of Sales or Sales Value

Cah

Working Expenses

Each constituent of the working capital is valued on the basis of valuation


Enumerated above for the holding period estimated. The total of all such valuation becomes the
total estimated working capital requirement.
The assessment of the working capital should be accurate even in the case
of small and micro enterprises where business operation is not very large. We know that working
capital has a very close relationship with day-to-day operations of a business. Negligence in
proper assessment of the working capital, therefore, can affect the day-to-day operations
severely. It may lead to cash crisis and ultimately to liquidation. An inaccurate assessment of the
working capital may cause either under-assessment or over-assessment of the working capital
and both of them are dangerous.

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PRINCIPLES OF WORKING CAPITAL MANAGEMENT POLICY:


The following are the general principles of a sound working capital management policy:
PRINCIPLES OF WORKING CAPITAL MANAGEMNT POLICY

PRINCIPLES OF
RISK

PRINCIPLES OF
COST OF

PRINCIPLES OF
EQUITY

PRINCIPLES
OF MATURITY
OF

1. PRINCIPLE OF RISK VARAITAION (CURRENT ASSETS POLICY):


Risk here refers to the inability of a firm to meet its obligations as and when they become due for
payment. Larger investment in current Assets with less dependence on short term borrowings,
increase liquidity, reduces risk and thereby decreases the opportunity for gain or loss. On the
other hand less investments in current assets with greater dependence on short term borrowings,
reduces liquidity and increase profitability. In other words there is a definite inverse relationship
between the degree of risk and profitability.

In other words, there is a definite inverse

relationship between the risk and profitability. A conservative management prefers to minimize
risk by maintaining a higher level of current assets or working capital while a liberal

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management assumes greater risk by reducing working capital. However, the goal of
management should be to establish a suitable trade off between profitability and risk.

2. PRINCIPLES OF COST OF CAPITAL: The various source of raising working


capital finance have different cost of capital and the degree of risk involved. Generally, higher
and risk however the risk lower is the cost and lower the risk higher is the cost. A sound working
capital management should always try to achieve a proper balance between these two.

3.PRINCIPLE OF EQUITY POSITION: The principle is concerned with planning the


total investments in current assets. According to this principle, the amount of working capital
invested in each component should be adequately justified by a firms equity position. Every
rupee invested in current assets should contribute to the net worth of the firm. The level of
current assets may be measured with the help of two ratios:
1. Current assets as a percentage of total assets and
2. Current assets as a percentage of total sales
While deciding about the composition of current assets, the financial manager may consider the
relevant industrial averages.

4. PRINCIPLES OF MATURITY OF PAYMENT: The principle is concerned with


planning the source of finance for working capital. According to the principles, a firm should
make every effort to relate maturities of payment to its flow of internally generated funds.
Maturity pattern of various current obligations is an important factor in risk assumptions and risk
assessments. Generally shorter the maturity schedule of current liabilities in relation to expected
cash inflows, the greater the inability to meet its obligations in time.

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CONSEQUENCES OF UNDER ASSESMENT OF WORKING CAPITAL:


Growth may be stunted. It may become difficult for the enterprises to undertake
profitable projects due to non availability of working capital.
Implementations of operating plans may brome difficult and consequently the profit goals
may not be achieved.
Cash crisis may emerge due to paucity of working funds.
Optimum capacity utilization of fixed assets may not be achieved due to non availability
of the working capital.
The business may fail to honour its commitment in time thereby adversely affecting its
creditability. This situation may lead to business closure.
The business may be compelled to by raw materials on credit and sell finished goods on cash. In
the process it may end up with increasing cost of purchase and reducing selling price by offering
discounts . both the situation would affect profitable adversely.
Now avaibility of stocks due to non availability of funds may result in production stoppage.
While underassessment of working capital has disastrous implications on business
overassesments of working capital also has its own dangerous.

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CONSEQUENCES OF OUR OWN ASSESMNET OF WORKING CAPITAL:


Excess of working capital may result in un necessary accumulation of inventories.
It may lead to offer too liberal credit terms to buyers and very poor recovery system &
cash management.
It may make management complacent leading to its inefficiency.
Over investment in working capital makes capital less productive and may reduce return
on investment.
Working Capital is very essential for success of business & therefore needs efficient management
and control. Each of the components of working capital needs proper management to optimize
profit.

INVENTORY MANAGEMNT: Inventory includes all type of stocks. For effective


working capital management, inventory needs to be managed effectively. The level of inventory
should be such that the total cost of ordering and holding inventory is the least. Simultaneously
stock out costs should be minimized. Business therefore should fix the minimum safety stock

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level reorder level of ordering quantity so that the inventory costs is reduced and outs

management become efficient.

RECEIVABLE MANAGEMENT: Given a choice, every business would prefer selling


its produce on cash basis. However, due to factors like trade policies , prevailing market
conditions etc. Business are compelled to sells their goods on credit. In certain circumstances a
business may deliberately extend credit as a strategy of increasing sales. Extending credit means
creating current assets in the form of debtors or account receivables. Investment in the type of
current assets needs proper and effective management as, it gives rise to costs such as :
Cost of carrying receivables
Cost of bad debts losses

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Thus the objective of any management policy pertaining to accounts receivables would be to
ensure the benefits arising due to the receivables are more then the costs incurred for the
receivables and the gap between benefit and costs increased resulting in increase profits. An
effective control of receivables
Help a great deal in properly managing it. Each business should therefore try to find out
coverage credit extends to its clients using the below given formula:
Average Credit =

Total amount of receivable

(Extend in days)

Average credit sale per day

Each business should project expected sales and expected investments in receivable based on
various factor, which influence the working capital requirement. From this it would be
possible to find out the average credit days using the above given formula. A business should
continuously try to monitor the credit days and see that the average. Credit offer to clients is
not crossing the budgeted period otherwise the requirement of investment in the working
capital would increase and as a result, activities may get squeezed. This may lead to cash
crisis.

CASH BUDGET: Cash budget basically incorporates estimates of future inflow and
outflows of cash cover a projected short period of time which may usually be a year, a half or
a quarter year . effective cash management is facilated if the cash budget is further broken
down into months, weeks or even a daily basis.
There are two components of cash budget are:
1. Cash inflows
2. Cash outflows
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The main source for thses flows are given here under:
1. Cash Sales
2. Cash received from debtors
3. Cash received from Loans, deposits etc.
4. Cash receipts other revenue income
5. Cash received from sale of investment or assets.

CASH OUTFLOWS:
1. Cash Purchase
2. Cash payments to Creditors
3. Cash payment for other revenue expenditure
4. Cash payment for assets creation
5. Cash payments for withdrawals, taxes.
6. Repayments of Loan etc.
A suggestive for, at for cash budget is given below:

RESEARCH METHODOLOGY
Secondary Data:
Any data, which have been gathered earlier for some other purpose, are secondary data in the
hands of researcher. Those data collected first hand, either by the researcher or by someone
else, especially for the purpose of the study is known as primary data.
The data collected for this project has been taken from the secondary source. Sources of
secondary data are:-

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Internet
Magazines
Publications
Newspapers
Broachers

RATIO ANALYSIS

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FY 05-06

FY 06-07

FY 07-08

29843.52

47163.72

61410.49

7611.44

6597.95

7459.4

12759.32

14530.46

20880.64

7611.44

6597.95

7459.4

45503

52527.1

81786.93

working capital

22232.08

40565.77

53951.09

average inventory (average of opening & closing stock


of year)

8594.615

14476.465

22666.83

cost of goods sold = cost of sales

37398

47018.31

67855.4

total assets

87666

124436.12

138465.6

total annual expenses -(depreciation +debt expenses)

37313.16

27364.06

23898.65

average gross income

97754.89

63633.37

51858

PROFIT before interest and taxes

5998

8120.16

14612.92

Total interest

747.8

2653.75

5214.77

Net Profit after tax (NPAT)

4115

3893.37

7383.56

capital employed (FA+CA-CL )

89529.68

106917.71

111772.7

investment (FA+CA)

97141.12

113515.66

119232.1

67297.6

66351.94

57821.59

Current assets

current liabilities
quick assets
quick liabilities
Net turnover (sales)

Fixed assets

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LIQUIDITY RATIOS
CURRENT RATIO
Current ratio is defined as the relationship between current assets and current liabilities. It is a
measure of general liquidity & is most widely used to make the analysis of short term financial
position of a firm. Current ratio is the ratio of current assets to current liabilities. A relatively
higher ratio is an indication that the firm is liquid and has the ability to pay its current obligations
on time. On the other hand a low current ratio indicates that the
Liquidity position of the firm is not good and shall not be able to pay its current liabilities in
time. Current Ratio:
The Current ratio is calculated by dividing current assets by current liabilities:
Current ratio: Current Assets
Current Liabilities
FIANANCIAL YEAR

CURRENT ASSETS

CURRENT LAIBILITIES

CURRENT RATIO

FY 2005-2006

29843.52

7611.44

3.92

FY 2006-2007

47163.72

6597.95

7.14

FY2007-2008

61410.49

7459.4

8.23

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FIANANCIAL YEAR

QUICK ASSETS
QUICK
LIABILITITES

CURRENT LAIBILITIES

QUICK RATIO

FY 2005-2006

12759.32

7611.44

1.67

FY 2006-2007

14530.46

6597.95

2.2

FY2007-2008

20880.64

7459.4

2.78

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QUICK RATIO: Quick ratio or liquid ratio is a more rigorous test of liquidity than the
current ratio. The term liquidity refers to the ability of the firm to pay short term obligations as
and when they become due. Quick ratio may be defined as ration of quick assets to quick
liabilities. Liquid assets include all the current assets excluding inventories & prepaid expenses.
Liquid liabilities mean all liabilities excluding bank overdraft. Inventories & prepaid expenses
are not termed as liquid assets because they cannot be converted into cash immediately without a
loss of value.

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CURRENT SCENERIO INTERPRETATION


While interpreting the figures of both the above ratios we should keep in mind the following one
point
DABUR is a manufacturing concern
Since it is manufacturing concern the an excess of inventory as compared to other industry
models such as the services sector is an integral fact. As a result it is bound to have higher
current ratio and quick ratio as compared to other industries.
The sharp rise of current ratio from 20% (FY 05-06) to 37% (FY 06-07) to 43 %( FY 07-08)
Can be attributed to
a. Higher pile up of inventory which was to be used up for trial run in producing new
products from the new plant set up.
b. Higher prepaid expenses related to advances given so as to pile up the inventory so that
when the inventory is needed for trial run, its available.
c. An increase in average receivables which was in sync with increased capacity of
production and also increased sales.
An important point to note here is that an excess of cash balance arising out of idle money
coming out of FCCB issue expense has been deducted as correspondingly it accounts for long
term liability (debentures) which have no effect on working capital management.
The quick ratio is a more important indicator of liquid position of DABURas it hardly varies
from 25% (FY 06-07) to 33% (FY 07-08). Obviously the effect of inventories has been negated.

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EFFICIENCY RATIO
From the perspective of working capital management we would be discussing three important
ratios they are.
Sales to working capital ratio
Inventory turnover ratio
Current assets turnover ratio.\

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SALES TO WORKING CAPITAL RATIO


This ratio is computed by dividing working capital by sales. This ratio helps to measure
efficiency of the utilization of net working capital. It signifies that for an amount of sales. A
relative amount of working capital is needed. If any increase in sales in contemplated, working
capital should be adequate & thus this ratio helps management to maintain the adequate level of
working capital

Financial Year
Sales to working capital ratio

FY 05-06
2.046727

FY 06-07
1.294863

FY 07-08
1.51595

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CURRENT SCENERIO INTERPRETATION


As seen from the above table the ratio has decreased from 2 (FY 05-06) to 1.29 in (FY 06-07)
and then increased to 1.5 (FY 07-08). This ratio is again indicative of the fact that the year in
which the expansion took place the sales did not match up with the scale of expansion.
Otherwise it would have remained intact and not decreased. The slight increase from 1.29 to
1.51 is indicative of the fact that the full impact of expansion is being slowly realized & sales
are slowly increasing.

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INVENTORY TURNOVER RATIO


This ration indicates the effectiveness and efficiency of inventory management. This ratio is
calculated as cost of goods sold: average inventory shows how speedily the inventory is turned
into accounts receivables through sales. The higher the inventory turnover ratio (also called stock
velocity) the more the efficient inventory management.
Financial Year
inventory turnover ratio/ stock velocity

FY 05-06
4.351329

FY 06-07
3.2479138

FY07-08
2.9936

CURRENT SCENERIO INTERPRETATION


The stock velocity is decreasing subsequently from 4.35 (FY 06-07) to 2.99 (FY 07-08) which
shows inefficiency on the part of inventory management.
Partly the reason for the fall can be attributed to stocking up of inventory for the trail run &
using them in testing the expansion mode machinery.

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CURRENT ASSETS TURNOVER RATIO


This ratio is indicated by sales upon current assets. This ratio indicates the efficiency with which
the current assets turn into sales & higher current assets turnover ratio implies by & large a more
efficient use of funds in current assets. Thus, a high turnover rate indicates reduced lock up of
funds in current assets. An analysis of this ratio over a period reflects working capital
management of the firm
Financial Year
current assets turnover ratio

FY 05-06

FY 06-07

1.52472

1.11371834

FY07-08
1.331807

CURRENT SCENERIO INTERPRETATION


The ratio is slightly decreasing from 1.52 (FY 05-06) to 1.11 (FY 06-07) & then increasing to
1.33 (FY 07-08) which shows that sales increase is not matched by the increase in current assets
in the expansion phase of DABUR. The reason can be well attributed to the piling up of trial
stock and not full use of the expanded production capacity.

OPERATING RATIOS
Working ratio
Interest coverage ratios

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RECOMANDATION

Making available just adequate quantum of working capital. Some of the existing
machinery is new with absolute equipments requiring modernization and rebuilding.

The company should administrate their credit on the basis of certain well recognized and
established principle of credit administration.

The company should maintain an optimum level of cash in the business in order to
maintain a proper liquidity in the business.

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COCLUSION

Working capital management is an important aspect of any business. Every business concern
should have adequate working capital to run its business operation. Every concern should have
neither redundant of excess working capital nor inadequate or shortage of working capital. Both
excess as well as short working capital positions are bad for any business.
The three elements of working capital management are cash management receivable
management and inventory management. If a finance manager maintains these three elements of
working capital management properly means the concern will get dramatic improvement in their
sales volume and also in business. Working capital policies of a firm have a great effect on its
profitability, liquidity and structured health of the organization.
Every concern should adopt some new tread management strategies that will help in greater
productivity, inventory optimization and also better working capital management. So, it is noted
that working capital is a means to run business smoothly and profitability. Thus, the concept of
working capital has its own important in a going concern.Good management of working capital
is part of good finance management effective use of working capital will contribute to the
operational efficiency of a department; optimum use will help to generate maximum return.
DABURis also using SAP 6.0 versions which is very advanced to do every transaction of any
organization. SAP 6.0 also applicable for e-transaction.

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BIBLOGRAPHY
www.dabur.com
www.moneycontrol.com
www.google.com
Financial Management theory and practice by Prassanna Chandra
Financial Management theory and practice by Shashi .K. Gupta & R.K.
Sharma

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