Assignment, Seminar in Working Capital Management, BBA-BI 6th semester, Ace Institute of Management

1. Profitability Analysis
of Dabur Nepal
Seminar in Working Capital Management
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2. Introduction to Dabur Nepal
 Dabur Nepal Private Limited was
established as an Independent Group
Company in 1992
 CEO: Mr. Udyan Ganguly
 General Products:
 Health Care
• Dabur Chyawanprash
• Dabur Honey
 Personal Care
• Dabur Amla Hair Oil
• Vatika Shampoo
 Food
• Real Juice
• Homemade Cooking Paste
 Annual Turnover: 52142.18 lacs
(Approx.)
 Total Assets: 23784.33 lacs (Approx.) www.themegallery.com LOGO

3. Introduction to Dabur Nepal
Certified
Increased for
Started with the turnover HACCP 2012
Won the best
prodn. of oil, by 19 % 2009
exporter
dantmanjan & 2006
award
other herbal 2004
products 2002 First
1998 SAP FMCG to
1994 launch its
1992 Best online
manufacturing shopping
Bought 300 & marketing portal
Estd.i
acres plot in company
n1989
Banepa for
Nursery
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4. Working Capital
Management
 WCM is a managerial accounting strategy focusing on
maintaining efficient levels of both components of working
capital, current assets and current liabilities, in respect to each
other
 Working capital requirement decides the liquidity and profitability
of a firm
 Working capital management ensures a company has sufficient
cash flow in order to meet its short-term debt obligations and
operating expenses
 Key Aspects include,
 Liquidity
 Leverage
 Profitability
 Cash Conversion Cycle
 Size of the Firm
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5. Objectives of the
Study
 To analyze the relationship between Working Capital
Efficiency and Profitability in Dabur Nepal
 To analyze the relationship between Liquidity and
Profitability in Dabur Nepal
 To examine the relationship between Liquidity and
Leverage of Dabur Nepal
 To examine the relationship between the size of the firm
and profitability of Dabur Nepal
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6. Issues
 The working capital policy is the firm’s policy about its working
capital level and how its working capital should be financed…
decisions about how much to keep in its cash account, what
level of inventory to maintain, and how much to allow
receivables to build up” (Danh, 1999)
 New Zealand Department of Treasury (2007) concluded that
operating with more working capital than is necessary leads to
over-investment which represents an unnecessary cost
 Vijaykumar and Venkatachalam (1995) concluded that liquidity
was negatively associated with profitability
 Shin and Soeven (1998) and Koperunthevi (2010) found a
negative relationship between cash conversion cycle and
profitability
 Koperunthevi (2010) concluded that the working capital
management very much influences profitability of
manufacturing companies and increase in the cash conversion
cycle leads to less profitability. www.themegallery.com LOGO

7. Methodology
 Population: 18 manufacturing companies listed in the
Nepal Stock Exchange(NEPSE) market
 Sample: 1 sample company
 Observation: 5
 Study Period: 2006-2010 (5 years)
 Data Extraction: Use of many secondary data, mainly the
Annual Reports
 Balance Sheets
 Income Statements
 Techniques: Descriptive Statistics, Correlation Analysis
and Regression Analysis
 Tools: MS - Excel
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8. Variables
 Return on Assets (ROA) = Net Profit/ Total Assets
 Return on Equity (ROE) = Net Profit/ Total Equity
 Current Ratio = Current Assets / Current Liabilities
 Quick Ratio = (Current Assets – Inventories) / Current
Liabilities
 Accounts Receivable Period (ARP) = (Accounts
Receivable x 365) / Sales
 Inventories Turnover Period (ITP) = (Inventories x 365) /
Cost of Goods Sold
 Account Payable Period (APP) = (Accounts Payable x
365) / Cost of Goods Sold
 Cash Conversion Cycle (CCC) = (ITP + ARP – APP)
 Debt Ratio (DR) = Total Debt/ Total Assets
 Size of the Firm = ln (Total Sales) www.themegallery.com LOGO

9. Study Models
Quick
Ratio
ROA
Size of
Current
the
Ratio
Firm
Cash
Conversion Model 2
Cycle
ROA = α + β1QR+ β2CR+ β3Size+€ ITP
Current
Ratio ROE
Return on
Debt ratio
Equity
APP ARP
Model 1
CR = α + β1ROE+ β2DR+ β3CCC+€ Model 3
ROE = α + β1ITP+ β2APP+ β3ARP+€
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10. Statistical Result and
Analysis
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11. Liquidity
Current Ratio
Current Ratio
2.710 2.794
2.025
1.621 1.618
2006 2007 2008 2009 2010
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12. Cash Conversion Cycle
Cash Conversion Cycle
Cash Conversion Cycle
49.522
32.651 34.420 31.050
24.627
2006 2007 2008 2009 2010
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13. Profitability
ROA
ROA
35.6%
27.0% 29.4%
15.4% 14.6%
2006 2007 2008 2009 2010
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14. Leverage
Debt Ratio
Debt Ratio
0.413 0.389
0.262
0.169 0.140
2006 2007 2008 2009 2010
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15. Size of the Firm
Size of the Firm
Size of the Firm
10.211 10.227
10.105
9.998
9.873
2006 2007 2008 2009 2010
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16. Statistical Result and
Analysis
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17. Descriptive Statistics
Current Quick ROA ROE Debt ITP APP ARP CCC Size
Ratio Ratio Ratio
Mean 2.154 0.977 0.244 0.759 0.275 107.587 112.756 39.623 34.454 10.083
Standard 0.256 0.141 0.041 0.007 0.056 8.567 8.699 4.049 4.114 0.067
Error
Median 2.025 0.870 0.270 0.765 0.262 101.172 117.718 36.276 32.651 10.105
Standard 0.572 0.315 0.092 0.017 0.124 19.155 19.451 9.054 9.198 0.149
Deviation
Minimum 1.618 0.762 0.146 0.733 0.140 93.200 90.721 28.275 24.627 9.873
Maximum 2.794 1.528 0.356 0.774 0.413 141.050 136.674 50.117 49.522 10.227
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18. Correlation Analysis
Current Quick ROA ROE Debt ITP APP RP CCC Size
Ratio Ratio Ratio
Current 1.000
Ratio
Quick Ratio 0.634 1.000
ROA -0.058 -0.673 1.000
ROE 0.314 -0.054 -0.103 1.000
Debt Ratio -0.719 -0.754 0.675 -0.359 1.000
ITP -0.134 -0.244 -0.371 0.612 -0.372 1.000
APP -0.798 -0.478 -0.310 -0.006 0.213 0.665 1.000
ARP -0.613 -0.407 0.502 -0.690 0.890 -0.677 0.035 1.000
CCC 0.805 0.102 0.377 0.608 -0.348 0.010 -0.696 -0.500 1.000
Size -0.024 -0.449 0.923 -0.426 0.669 -0.667 -0.448 0.674 0.223 1.000
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19. Statistical Result and
Analysis
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20. Model 1
 Here, liquidity (current ratio) is
Regression Statistics dependent variable. The Cash
Multiple R 0.99 Conversion Cycle, Debt Ratio and
R Square 0.97
ROE are independent variables
Adjusted R Square 0.88
Standard Error 0.19  This means that 97% (approx)
Observations 5.00 change in the dependent variable is
explained by the change in the other
3 dependent variables
Coefficie Standard t Stat P-value  19% is the adjustment factor for the
nts Error accuracy of the data
Intercep 11.798 5.523 2.136 0.279  Positive changes in the CCC would
t increase Current Ratio by 11.798
CCC 0.053 0.014 3.944 0.158
units
ROE -14.179 7.520 -1.885 0.310
Debt -2.617 0.851 -3.074 0.200  ROE is negatively related with
Ratio Current Ratio
 The Debt ratio is also negatively
correlated with Current Ratio by
2.617 units
 The p-values of all CCC, ROE and
Debt ratio have a p-value greater
than 0.05 www.themegallery.com LOGO

21. Model 2
 In this model, ROA, a measure of
Regression Statistics profitability is the dependent variable
Multiple R 1.00 and the independent variables are
R Square 0.99 Quick Ratio, Current Ratio and the
Adjusted R Square 0.96 Size of the Firm
Standard Error 0.02
 99% (approx) change in the
Observations 5.00
dependent variables are explained by
the change in the other 3 dependent
variables
Coefficie Standard t Stat P-  At a level of 2%, which is the
nts Error value adjustment factor for the accuracy of
Intercept -3.873 0.744 -5.203 0.121 the data
Quick Ratio -0.168 0.045 -3.749 0.166
Current Ratio 0.052 0.022 2.351 0.256  With negative fluctuation in the
Size of the 0.413 0.073 5.657 0.111 profitability measure, Quick Ratio
Firm would increase by -0.17
 Current Ratio also seems to have a
positive relationship with ROA
 The size of the firm is positively
correlated with ROE as well.
 The level of risk present in this model
is 0.02, i.e. 2%.
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22. Model 3
 In this model the ROE is the
Regression Statistics dependent variable and the other
Multiple R 0.86 independent variables are inventory
R Square 0.74
turnover period, account payable
Adjusted R Square -0.05
Standard Error 0.02
period and account receivable period
Observations 5.00  74% change in the dependent
variables is explained by the change
in the other 3 dependent variables
 2% is the adjustment factor for the
Coefficie Standard t Stat P- accuracy of the data
nts Error value  Positive changes in the ITP would
Intercept 0.653 0.166 3.931 0.159 increase ROE by 0.017 units
ITP 0.002 0.002 1.001 0.500
APP -0.001 0.001 - 0.525  The APP is negatively related with
0.925 ROE
ARP 0.001 0.003 0.473 0.719  Account receivable period is
positively correlated with ROE
 Level of risk presented in this model
is 0.02, i.e. 2%.
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23. Conclusion
 Dabur Nepal has significant Return of Assets as well. This is reflected
in increasing profitability of Dabur Nepal.
 Average ROA is 0.244 (Approx)
 Leverage has negative correlation with liquidity as shown by negative
correlation with Quick ratio and Current Ratio at -0.719 and -0.754
respectively.
 ROA, being a measure of profitability shows a negative correlation with
both measures of liquidity, Current ratio as well as quick ratio, in -0.058
and -0.673.
 The Level of debt in Dabur Nepal had reached high levels some years
ago, yet it has regained a better position recently.
 Average debt level lies at 0.275 (Approx)
 The size of the firm is increasing annually due to rise in sales of various
products offered by Dabur Nepal.
 The Average size of the firm relative to its level of sales is 10.083
(Approx)
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24. Conclusion
 Cash Conversion Cycle and Profitability: Positive
Relationship
 Liquidity and Profitability : Negative Relationship
 Liquidity and Leverage : Negative Relationship
 Size of the firm and Profitability : Positive
Relationship
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