`Working Capital Analysis: A Comparative Study of Hindustan Unilever Limited

(HUL) and Indian Tobacco Company (ITC)

A
SYNOPSIS
SUBMITTED FOR REGISTRATION OF DEGREE OF
MASTER OF COMMERCE IN ACCOUNTANCY & LAW
(COMMERCE)

Under The Supervision Of: Submitted By:

PROF. PRAMOD KUMAR VISHNU VERMA
Head (Dept. Of Accountancy & Law
And Dean (Faculty of Commerce)

FACULTY OF COMMERCE
DAYALBAGH EDUCATIONAL INSTITUTE
(DEEMED UNIVERSITY)
DAYALBAGH, AGRA

Working Capital Analysis: A Comparative Study of Hindustan Unilever

Limited (HUL) and Indian Tobacco Company (ITC)
(August 2019)
INTRODUCTION

Working capital (abbreviated WC) is a financial metric which represents operating liquidity
available to a business, organization, or other entity, including governable entity. Along with
fixed assets such as plant and equipment, working capital is considered a part of operating
capital. It is calculated as current assets minus current liabilities. If current assets are less
than current liabilities, an entity has a working capital deficiency, also called a working
capital deficit. Net working capital is working capital minus cash (which is a current asset)
and minus interest bearing liabilities (i.e. short term debt). It is a derivation of working
capital that is commonly used in valuation techniques such as DCFs (Discounted cash flows).

Working Capital = Current Assets − Current Liabilities

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

Current assets and current liabilities include three accounts which are of special importance.
These accounts represent the areas of the business where managers have the most direct
impact:

 Accounts receivable (current asset)

 Inventory (current assets), and
 Accounts payable (current liability)

The current portion of debt (payable within 12 months) is critical, because it represents a
short-term claim to current assets and is often secured by long term assets. Common types of
short-term debt are bank loans and lines of credit. An increase in working capital indicates
that the business has either increased current assets (that is has increased its receivables, or
other current assets) or has decreased current liabilities, for example has paid off some short-
term creditors.
Working Capital Management Decisions relating to working capital and short term financing
are referred to as working capital management. These involve managing the relationship
between a firm's short term assets and its short-term liabilities. The goal of working capital
management is to ensure that the firm is able to continue its operations and that it has
sufficient cash flow to satisfy both maturing short-term debt and upcoming operational
expenses.
1. Hindustan Unilever Limited
Hindustan Unilever Limited (HUL) is India's largest consumer goods company based in
Mumbai, Maharashtra. It is owned by the British-Dutch company Unilever which controls
52% majority stake in HUL. Its products include foods, beverages, cleaning agents and
personal care products.

HUL was formed in 1933 as Lever Brothers India Limited and came into being in 1956 as
Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati Mfg. Co.
Ltd. and United Traders Ltd. It is headquartered in Mumbai, India and has employee strength
of over 16,500 employees and contributes to indirect employment of over 65,000 people. The
company was renamed in June 2007 as "Hindustan Unilever Limited". Lever Brothers
started its actual operations in India in the summer of 1888, when crates full of Sunlight soap
bars, embossed with the words "Made in England by Lever Brothers" were shipped to the
Kolkata harbour and it began an era of marketing branded Fast Moving Consumer Goods
(FMCG).

Hindustan Unilever's distribution covers over 2 million retail outlets across India directly
and its products are available in over 6.4 million outlets in the country. As per
Nielsen market research data, two out of three Indians use HUL products.

Brands
HUL is the market leader in Indian consumer products with presence in over 20 consumer
categories such as soaps, tea, detergents and shampoos amongst others with over 700 million
Indian consumers using its products. Eighteen of HUL's brands featured in the ACNielsen
Brand Equity list of 100 Most Trusted Brands Annual Survey (2012). The company has a
distribution channel of 6.3 million outlets and owns 35 major Indian brands. Its brands
include:

 Food brand- Lipton tea, modern bread, Annapurna Atta and salt etc.
 Home care brand – wheel detergent, vim, toilet cleaner, cif cleaner etc.
 Personal care brand- lux soap, fair & handsome cream, dove soap etc.
INDIAN TOBACCO COMPANY

ITC Limited or ITC is an Indian conglomerate which has its headquarters in the city of Kolkata West
Bengal The business of ITC Limited is divided into five major segments: Fast-Moving Consumer
Goods (FMCG), Hotels, Paperboards & Packaging, and Agri Business & Information Technology.
ITC was formed on 24 August 1910 with the name - Imperial Tobacco Company of India
Limited, and the company went public on 27 October 1954. In the 1970s, it engaged into non-tobacco
businesses. In 1975, the company acquired a hotel in Chennai which was renamed the ITC- Welcome
Group Hotel Chola (now known as My Fortune, Chennai). In 1985, ITC started the Surya Tobacco Co.
In Nepal as an Indo-Nepali and British joint venture, with the shares divided between ITC, British
American Tobacco and various independent domestic shareholders in Nepal. In 2002, Surya
Tobacco became a subsidiary of ITC and its name was changed to Surya Nepal Private
Limited. In 2000, ITC launched the Expressions range of greeting cards, the Wills Sport range of casual
wear, and a wholly owned information technology subsidiary, ITC InfoTech India Limited. In 2001, ITC
introduced the Kitchens of India brand of ready -to-eat gourmet Indian recipes, which are produced and
sold internationally firstly in cans and then, in retort packages, online and also at festivals .In 2002, ITC
entered the confectionery and staples segments and acquired the Bhadrachalam Paperboards
Division and the safety matches company WIMCO Limited. ITC entered the incense sticks or
agarbattis business in 2003, selling its products under the Mangaldeep brand.
ITC diversified into body care products in 2005. In 2010, ITC launched its hand rolled cigar–
Armenteros - in the Indian market.
The company emerged with online sales in 2014.

Major Businesses of ITC Ltd.

 Cigarettes: ITC Ltd sells 81 percent of the cigarettes in India, where 275 million people use
tobacco products and the total cigarette market is worth close to $6 billion (around
Rs.65,000 crore) ITC's major cigarette brands include Wills Navy Cut, Marlboro Advance
Black Gold Flake Kings, Gold Flake Premium lights, Gold Flake Super Star Etc.
 Personal care: Personal care products include perfumes, hair-care and skincare categories. Major
brands are Fiama Di Wills, Vivel, Essenza Di Wills, Superia and Engage.
 Literature review

International review

S.No Year Author’s Topic Objective Research Finding

Name Methodology
1. 2017 Jakpar S Working Capital To empirically In this study, the This study is aimed
Management and examine financial data are at investigating the
Profitability: whether there is collected from the relationship
Evidence from a significant DataStream and the between the
Manufacturing relationship annual report of working capital
Sector in Malaysia between the relevant companies management and
working capital listed at the Bursa firm’s profitability.
management Malaysia in For the purpose of
and firm’s Malaysia. analysis, a sample
profitability The model that is of 164
used in this study is manufacturing firms
Pooled Ordinary over a 5 years
Least Squares period from 2007 to
(OLS), Random or 2011 was selected.
Fixed effect The sample data
Regression Model. were obtained from
DataStream and
Bursa Malaysia
website.

2. Aug Navena Nesa A Study On The To study the Managing the the study it has been
2018 Kumar Impact Of The relationship working capital is an found that among
Working Capital between important part of the working capital
Management On Working Capital short-term financial components,
The Profitability Of Management management. The inventory turnover
The Leading Listed and Profitability long-term financial period is affecting
Automobile of Leading management often the Net Operating
Companies In India Listed receives more profitability of
(2006- 2012) Automobile attention although automobile sector.
companies at many researchers, It has been found
S&P CNX top Jose et al. (1996) ²⁹, that there is a
500 in India Deloof (2003) ³⁰ negative
from (2006- have shown that relationship exists
2012). short-term financial (i.e.) reduction in
management also the inventory days
has a clear effect on will increase the
the profitability of a company’s
firm. profitability
3. April Kazi “the impact of 1.)To find out The study applied Receivable
2012 Naimulbari working capital the effects of co-relational Collection Period.
management on different research. The Payable Deferral
profitability” components of process of Period.
working capital measurement is Inventory
management on central to Conversion Period.
profitability. quantitative research Cash Conversion
2.)To Study a because it provides Cycle.
relationship the fundamental
between the connection between
objectives of empirical
liquidity and observation and
profitability of mathematical
pharmaceuticals expression of
industries in quantitative
Bangladesh. relationships
Sampling is almost
to do a complete
census of most
population. A
properly designed
sample is more
efficiently managed,
less costly and can
provide the level of
information
necessary for the
desired objectives..
4. Jan Mohammad Working Capital To Studying the The research tries to The First
2011 Alipour Management and effect of study the effect of Regression Model:
Corporate different working capital With testing the
Profitability: components of management on first hypothesis,
Evidence from Iran cash conversion profitability of the result indicates that
cycle on the accepted companies there is a significant
profitability of in Tehran stock relation between the
the companies. exchange. average collection
concluding Multiple regression period and
about the and correlation profitability.
relationship analysis has been The Second
between used to study the Regression Model:
working capital relationship between H hypothesis states
management independent that there is a
and profitability variables (cash significant relation
of the conversion cycle and between Inventory
companies. its components) and Turnover in Days
dependent variable and profitability.
(GOP).
5. July Asghar Ali & Working Capital 1.)To find the Data is obtained The study showed a
2012 Syed Atif Management: Is It affect of from the website of positive impact of
Ali Really Affects the working capital State Bank of working capital
Profitability? on profitability Pakistan having management on
Evidence from of firms. balance sheet profitability,
Pakistan 2.) To find the analysis report of working capital on
affect of total joint stock total assets and
assets on companies listed on impact of total
profitability of the Karachi Stock assets on
firms. Exchange from 2003 profitability of 15
3.)To find the to 2008. companies of 3
affect of different sectors of
working capital Pakistan.
on total assets of
firms

National review

S.no year Author’s Topic objectives Research finding

name Methodology
1. Dec D. Working 1.)To analysis the The primary The fixed asset
2018 Muthusamy Capital efficiency of methods are used turnover ratio shows
and M. Management inventories and its for collection of that the asset are
Sathish in components and ancillary’s details utilized by the firms
Kumar Ancillary’s receivable in the during period of were more efficiently
of BHEL Ancillary Unit. 3. study. The annual and useful.
2.)To study the reports are used as The sales to working
method of secondary which is capital ratio show the
financing of audited and some firms have inefficiency
working capitals updated in using working
budgeted in information capital.
Ancillary Unit. collected in news
papers and website
of BHEL about the
concern.

2 April Tehreem Working 1) To examine to 1.Inventory The study was aimed

2018 Saif capital significant turnover to detect the impact of
management relationship working capital
and between current 2.current ratio management on
profitability ratio and firm profitability of
profitability. 3.debt to equity electrical equipment
2) To evaluate the ratio Sector of KSE listed
 significant companies of
relationship 4. operating ratio Pakistan. For this
between debt to flow to debt ratio. purpose regression
equity ratio and model was applied
profitability of the and different
firm. assumption test was
also applied for the
model fitness.

3. Dec. Mr .Shiva working 1.)To study the The sample for the The selected
2016 Kumar capital working capital study has been performance indicators
management management of selected a company have shown a positive
- it’s impact Coal India Ltd. named COAL outlook except
on liquidity 2.)To examine the INDIA ltd which is debtor’s turnover ratio
and liquidity position of one of the top and collection period
profitability - Coal India Ltd. public sector which have shown
a study of companies in the negative trend.
coal India ltd mining sector.
4. July Mr.Pushpaku A Study on 1.)To draw findings Research is the No loans and advances
2010 mar.B Working and make systematic process have been granted by
Capital conclusions on the of collecting and the companies on the
management basis of the above analyzing data in basis of shares,
in Public analysis. order to increase debentures and other
Enterprises 2.)To analysis the our understanding securities..
trend in investment of the phenomenon
in working capital about which we are
and its components concerned or
of the Ancillary interested. It is the
Unit. in-depth search for
knowledge.
5. Aug Jyoti Mahato Impact of 1.)To study the This study is based The Inventory
2010 Working back ground and on secondary data. conversion period is
Capital characteristics of In this research we use as proxy for
Management the Telecom will see the inventory policy. The
on industry in India different working average value of
Profitability: 2.)To analyse data capital management inventory conversion
Indian related to working practices and its period is 105.69 days.
Telecom capital management impact on This means, firms in
Sector and profitability of profitability of 8 the sample needs on
Telecom industry Indian Telecom average 105.69 days to
firms in India Industry listed on sell inventory
the Indian stock
Exchange for a
period of five years
from 2010– 2015.
 Need of the study

Working capital is an important aspect for companies. This is important to manage the working capital
for business.
Working capital includes current assets and current liabilities.

After considering the various review of literatures, researcher found that various study have been
conducted regarding working capital. But no study have been found regarding these two companies
Hindustan Unilever Limited and Indian tobacco company for the selected period.

Objective of the study

 To find out the requirement of working capital.

 To analyze working capital in selected companies.

 To compare the selected companies on the basis of their working capital.

Research methodology

 Research Design

The research design for the study will be descriptive as well as analytical because it will be
carried out with specific objectives and utilizes the large number of data of FMCG Selected
companies.

 Collection of Data

The study will primarily base on secondary data. The Secondary data will be collected
From reports and researches published in journals, magazines, news papers, web sites
Periodicals, Annual Financial Reports, Corporate Sustainability Reports, Environmental
Reports, Health and Safety Reports, Social Reports, and other reports of selected
companies .

 Duration of Study

The data will be considered for a period of four years commencing from financial year
2014-2015 to 2017-2018.

 Tools
For the data analysis various accounting tools like accounting ratio and working capital
management

S.no Objectives Research methodology

1. To find out the requirement of working In order to know the
capital. requirement the working
capital of selected companies,
annual reports of these
companies will be analyzed.
 2. To analyze working capital in selected To achieve this objective,
companies. annual reports of selected
companies will be consider.
For this purpose, research will
apply accounting ratio
regarding working capital (i.e.)
current ratio, liquid ratio
etc.)and also analyze different
component of working capital
(i.e. cash management, debtor
management, inventory
management etc.)

 SELECTION CRITERIA
Two FMCG companies will be consider for research purpose. These companies have
been selected on the basis of their highest revenue basis as on 31st march 2015.
REFERENCE
1.) Navena Nesa Kumari,(2017) A Study On The Impact Of The Working Capital Management On
The Profitability Of The Leading Listed Automobile Companies In India IJSRM Volume 5 Issue

2.) KAZI NAIMULBARI , (2012) RESEARCH PAPER ON “THE IMPACT OF WORKING

CAPITAL MANAGEMENT ON PROFITABILITY “Independent university Bangladesh

3.) Mohammad Alipour, (2011) Working Capital Management and Corporate Profitability:
Evidence from Iran. World Applied Sciences Journal 12 (7): 1093-1099, 2011 ISSN 1818-4952

4.) Asghar Ali & Syed Atif Ali (2012) Working Capital Management: Is It Really Affects the
Profitability ? Evidence from Pakistan Global Journal of Management and Business Research
Volume 12 Issue 17 Version 1.0 Year 2012

5.) D. Muthusamy and M. Sathish Kumar (2018) Working Capital Management in Ancillary’s of
BHEL, Tiruchirappalli, Tamil Nadu Asian Journal of Managerial Science ISSN: 2249-6300
Vol.7 No.3, 2018, pp.14-17

6.) Jyoti Mahato (2010) Impact of Working Capital Management on Profitability: Indian Telecom
Sector Ramaiah University of Applied Sciences, Bangalore 560 054

7.) Tehreem Saif , (2018) Working capital management and profitability Mediterranean Journal of
Basic and Applied Sciences (MJBAS) Volume 2, Issue 2, Pages 117-125

8.) Mr. Pushpakumar .B (2010) A Study on Working Capital management in Public Enterprises
CAMS Journal of Business Studies and Research ISSN : 0975-7953

9.) Jakpar S (2017) Working Capital Management and Profitability: Evidence from Manufacturing
Sector in Malaysia J Bus Fin Aff, an open access journal Volume 6
10.) Mr .Shiva Kumar (2016) working capital management - it’s impact on liquidity and profitability
- a study of coal India ltd vol.4 (iss.12) ISSN- 2350-0530(o), ISSN- 2394-3629(p)