Impact of R&D and advt. on companies performance.

1
1. INTRODUCTION
1.1 Background of the study
1.1.1 Research and Development
Research and development is an emerging concept which is required by almost each and every
firm to have a competitive advantage over the rivals. Research and development is considered as
one of the means for improving performance.
The firms with higher R&D expenditure allocation are expected to earn more than the one that
do not. Research and development is a must needed activity for survival as well as for the growth
of the firm in this increasingly competitive atmosphere. R&D expenditures allows the firms to
prevent imitation by the rivals and earn super normal or above average returns. In order to
succeed and sustain in this dynamic competitive world, there is an increased demand for research
and development.
1.1.2 Advertisement
Advertising is any paid form of non personal presentation and promotion of ideas, goods, or
services by an identified sponsor. Firms are increasingly adopting advertising in order to reduce
costs, increase market share and sales, and build cemented customer relations. Advertising helps
the companies to create awareness, appeal, creation of standards through competition,
conviction, minimize hindrances between the organization and customers and employment
opportunities. Advertisement is an important weapon to grab audience attention and make them
aware about the products. Theoretically, it is apparent that advertising has the potentiality to
enhance the purchase of organizational products by the consumer, increase volume of sales,

2
increase the profits of the organization and enhance the organization relationship with its
customers.
Hence, the aim of this study is to find out empirically the association of Research and
Development & Advertisement on the performance (i.e. profitability) of the firm with special
context to the FMCG sector of India.
1.2 Review of Literature
1.2.1 Impact of Research and Development on firm’s performance
Prior studies have linked the relationship of research and development with the performance of
the firms. Chao-Hung Wang (2011) explains that the organizations have to work hard for their
survival in a competitive environment. For this, they have to efficiently allocate their assets. The
resource based view theory suggests that the firms with valuable resources and capabilities will
have an advantage over other firms in terms of performance. Millions of dollars are spent for
R&D activities by the firms. The expense of this R&D is outweighed by the benefits it generates
in the form of internal capability of innovation and enhanced performance.
Peter Drucker (2005) wrote in his seminal work that the basic function of a business is to bring
innovation to earn profits. Thus, in order to gain a competitive edge, more resources should be
spent on the research and development (R&D) activities.
Chao-Hung Wang (2011) explained it more clearly that the performance of a firm will outweigh
the costs of research and development. After reaching equilibrium, costs on R&D will be
compensated by the benefits received. He further explained it that innovative ideas do not have

3
tremendous effects. But eventually they prove to be firm specific assets. In the same way, R&D
activity will result in a better performance of the firm.
1.2.2 Impact of Advertising on firm’s performance
Advertising is to create understanding, liking, and selection of product or services. The most
influencing theory in marketing and advertising research is attitude towards the advertisement.
However, the attitude that is formed towards the advertisement help in influencing consumer’s
attitudes and perception toward the brand until their purchase intent (Goldsmith & Lafferty,
2002).
When consumer views an advertisement about the brand and develops likeness for the brand and
then eventually they are willing to purchase it (Goldsmith & Lafferty, 2002).
Brand knowledge through advertisement helps in influencing brand salience. This in return helps
to increase sales (Holden & Lutz, 1992).
1.3 Research Gap
In this project report, we reflect critically on the use of sampling. Most studies either lack
information on the sampling method used, or engage in non-probability sampling without
making adjustments to compensate for unequal selection probabilities, non-coverage, and
sampling fluctuations. We have used 5 FMCG companies of India as samples for comparison.
Their 5 year financial expenditure on Research & Development and Advertisement are used to
show the effects of these expenditure on the profitability of companies.

4
1.4 Objective of the study
The primary objective of the study is stated below:
1) To analyze the performance (i.e. profitability) of the selected FMCG Companies.
2) To find out the association of R&D and Advertisement on the firm’s performance.
1.5 Justification of the study
Investment in R&D and Advertisement is considered as an investment in intangible assets that
contribute to the profitability and long-term growth of the firm. Research & Development is an
increasingly important concept in order to have success in this era. The present study aims to
find out the relationship between R&D and Advertisement cost with firm performance.
1.6 Research Methodology
1.6.1 Sources of Data: Research depends on the tools or instruments used for collecting data.
The data used in this study is of secondary nature. Thus it is collected from the annual reports of
the companies. The ratios are calculated from these annual reports from the year 2012-2013 to
2016-17.
1.6.2 Population: Population is the list of all members or entities about which the researcher
studies and concludes. The population should be identified before selecting the sample size. The
population of the current study consists of FMGC sector of India.

5
1.6.3 Sample: Sample is the part of population from which the data is collected. The sample is
selected on the basis of top 5 FMCG companies of India. The top 5 FMCG companies selected
as sample are ITC, HUL, Britannia, Nestle India, and Godrej Consumer Products Limited (GCPL).
1.6.4 Period of the Study: To compare the performance of Companies, five years financial
ratios are being computed and compared.
1.6.5 Tools and Techniques used: Different financial ratios are used to compare the
performance of the companies. Performance of the firms is being measured through the ratios of
Return on assets (ROA), Return on equity (ROE) and Return on capital employed (ROCE). As a
proxy for comparison of R&D and Advertisement Expenditure on profitability we used the
formula Total R&D cost/ Total Expenditure & Total Advertisement cost/ Total Expenditure.
Further, in order to find out the linkage of R&D and Advertisement with firm’s Performance (i.e.
ROCE), Pearson’s Correlation Coefficient statistical technique is used. And student’s t-test is
also being performed for measuring the validity of the result.

6
2. CONCEPTUAL FRAMEWORK
2.1.1 Research & Development
Research and development (R&D) refers to the investigative activities a business conducts to
improve existing products and procedures or to lead to the development of new products and
procedures.
Companies across all sectors and industries utilize R&D to improve on product lines, and
companies experience growth through these improvements and through the development of new
goods and services. In consumer good, pharmaceuticals, and software/technology companies
tend to spend the most on R&D.
Investment in R & D is considered as an investment in intangible asset that contributes to long
term growth of the firm. A successful investment in R&D results in an innovative product and
service which enables the firm to enhance its intangible assets, thus differentiating itself from
other firms.
2.1.2 Advertising
There are various forms of advertising like informative advertising, persuasive advertising,
comparison advertising, and reminder advertising. Informative advertising is used to inform
consumers about a new product, service or future or build primary demand. It describes available
products and services, corrects false impressions and builds the image of the company.
Advertising can be done through print media which includes news papers ,magazines ,brochures
,Audio media for example Radio, and visual media which includes billboards, and television.

7
Advertising is the non-personal communication of marketing-related information in a target
audience, usually paid for by in order to reach the specific objectives of the sponsor. Advertising
is a message paid for by an identified sponsor and delivered through some medium of mass
communication.
Advertising may influence consumers in many different ways, but the primary goal of
advertising is to increase the probability that consumers exposed to an advertisement will behave
or believe as the advertiser wishes. Thus, the ultimate objective of advertising strategies is to sell
things persuasively and creatively. Advertising is used by commercial firms trying to sell
products and services; by politicians and political interest groups to sell ideas or persuade voters
by not-for-profit organizations to raise funds, solicit volunteers, or influence the actions of
viewers; and by governments seeking to encourage or discourage particular activities, such a
wearing seatbelts, participating in the census, or ceasing to smoke. The forms that advertising
takes and the media in which advertisements appear are as varied as the advertisers themselves
and the messages that they wish to deliver. Advertising is an indicator of the growth, betterment
and perfection of the business environment. Not only does advertising mirror the business
environment, it also affects and gets affected by our style of life. It is not at all surprising that
advertising is one of the most closely scrutinized of all business institutions. In today‟s
environment, advertisers are closely examined by the target audience for whom the
advertisement is meant for in the society.

8
2.2 Organizational Performance
Organizational performance is the final achievement of an organization which is measured either
in financial and non financial indicators, and contains a few things, such as the existence of
certain targets are achieved, has a period of time in achieving the targets and the realization of
efficiency and effectiveness. On the other hand, organizational performance refers to ability of
an enterprise to achieve such objectives as high profit, quality product, large market share, good
financial results, and survival at pre-determined time using relevant strategy for action.
Organizational performance can also be used to view how an enterprise is doing in terms of level
of profit, market share and product quality in relation to other enterprises in the same industry.
Consequently, it is a reflection of productivity of members of an enterprise measured in terms of
revenue, profit, growth, development and expansion of the organization.
All types of organization, whether small or big, public or private, for-profit or non-profit,
struggle for survival. In order to survive, they need to be successful (effective and efficient). To
assure their success, organizations must perform well. Ultimately, performance lies at the heart
of any managerial process and organizational construct and is therefore considered as a critical
concept in the strategic management field. Organizational performance includes multiple
activities that help in establishing the goals of the organization, and monitor the progress towards
the target. It is used to make adjustments to accomplish goals more efficiently and effectively.
Organization performance is what business executives and owners are usually frustrated about.
This is so, because even though the employees of the company are hard-working and are busy
doing their tasks, their companies are unable to achieve the planned results. Results are achieved
more due to unexpected events and good fortune rather than the efforts made by the employees.
However, for any business to be successful, functions must be defined and accomplished. It is

9
important for an organization to develop strategies that are designed around the skills that would
enhance the performance of the organization.
2.3 FMCG Industry in India
Fast moving consumer goods
(FMCG) industry is an important
sector that makes a substantial
contribution to the country’s
economic development. It has the
potential to generate foreign
exchange earnings through exports and diversify the country’s economy. This sector has grown
over time both in terms of value and quantity of imports.
The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian
economy. The market size of FMCG in India is estimated to grow from US$ 30 billion in 2011
to US$ 74 billion in 2018.
Food products are the leading segment, accounting for 43 per cent of the overall market.
Personal care (22 per cent) and fabric care (12 per cent) come next in terms of market share.
Growing awareness, easier access, and changing lifestyles have been the key growth drivers for
the sector.
FMCG goods are popularly known as consumer packaged goods. Items in this category include
all consumables (other than groceries/pulses) people buy at regular intervals. The most common

10
in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,
packaged foodstuff, and household accessories and extends to certain electronic goods. These
items are meant for daily of frequent consumption and have a high return.
2.4 Top 5 FMCG Companies in India:
2.4.1 ITC
John Players and Will lifestyle is the brand
of ITC in apparel. Personal care product
portfolio comprises of perfumes, skincare
and hair care categories. It has top brands
such as Vivel, Engage, Fiama Di Wills etc.
ITC is the large cap stocks in the Indian
stock market. It is the only FMCG stock in large-cap. The total revenue of the ITC is 37000 crore
approx. The current market capital of ITC is 331,562 crores. ITC net income is reaching to
10000 crores. One can buy ITC products from online portals such as the big basket, amazon,
Flipkart etc.
2.4.2 Hindustan Unilever Ltd (HUL)
The company was renamed in June 2007 to
“Hindustan Unilever Limited”. It is one of
the biggest players in FMCG sector in India
with the presence in over 20 consumer
categories. One of the top selling flour

11
brands, Annapurna atta, is the major product to add revenue to the company through food
segment. It also has Bru coffee, Brooke bond, Lipton tea, Knorr soups which expand the
portfolio. In homecare segment, it has active wheel detergent, comfort, surf excel, Rin etc. The
total revenue of the HUL is 32000 crore approx. The current market capital of HUL is 331,562
crores. HUL net income is reaching to 4100 crores.
4.2.3 Britannia
The name of company is Britania Industries
Limited. The company is the top leader in
cookies segment. It markets its biscuits under
brand name Britannia and Tiger across India.
Britannia is a trusted brand with 30% market share in India’s biscuit category with brands such
as Good Day, Marie Gold, Tiger, Milk Bikis, Nutri Choice, 50-50 etc. The revenue of Britania is
reaching to 8000 Crores Approx. The net income of Britania is 750 Crore approx.
4.2.4 Nestle India
The wide range of products offered by Nestle India
to its consumers in various categories such as milk
products, beverages, infant foods, chocolates &
confectionery, prepared dishes and cooking aids
etc. Nestle has a wide range of brands such as

12
Nescafe, Maggi, Milkybar, Kitkat, milkmaid, Nestea, Natural Dahi etc. The Company has eight
manufacturing units across India. The revenue of Nestle is reaching to 8000 Crores Approx. The
net income of Nestle is 450 Crore approx.
4.2.5 Godrej Consumer Products Limited (GCPL)
Godrej Consumer Products is a India’s
largest engineering and consumer products
company. It was found in the year 1897 by
Ardeshir Godrej and today its products are
used by over 1.1 billion consumers globally.
Adi Godrej is chairman of Godrej Consumer
Products. Company is aiming to expand overseas in Asia, Africa and Latin America regions.
GCPL has high penetration rate in Indian rural as well as urban market.

13
3. DATA ANALYSIS AND FINDINGS
The findings of the study are reported below:
3.1 Results and Discussion on Companies profitability:
Table 1. Return on Equity (%) of the selectedcompanies
Source: Author’s own tabulation
Fig. 1 Column Graph showing Return on Equity (%) of the selected companies
22.16
29.26 30.53 32.8 33.03
66.37
102.8
108.5
111.56
133.68
32.67
44.05
50.37
43.33
36.74
30.74
19.98
41.75
47.16
59.38
19.28 19.34 19.34 18.67 18.5
0
20
40
60
80
100
120
140
160
2016-17 2015-16 2014-15 2013-14 2012-13
Return on Equity (%)
ITC
HUL
BRITANNIA
NESTLE
GCPL
Companies 2016-17 2015-16 2014-15 2013-14 2012-13
ITC 22.16 29.26 30.53 32.80 33.03
HUL 66.37 102.80 108.50 111.56 133.68
BRITANNIA 32.67 44.05 50.37 43.33 36.74
NESTLE 30.74 19.98 41.75 47.16 59.38
GCPL 19.28 19.34 19.34 18.67 18.50

14
Observation: From the above graph we can observe that ROE of ITC was 22.16%, 29.26%,
30.53%, 32.80%, and 33.03% in the years 2016-17, 2015-16, 2014-15, 2013-14, and 2012-13
respectively. The ROE of HUL was 66.37%, 102.80%, 108.50%, 111.56%, and 133.68% in the
years 2016-17, 2015-16, 2014-15, 2013-14, and 2012-13 respectively. The ROE of Britannia was
32.67%, 44.05%, 50.37%, 43.33%, and 36.74% in the years 2016-17, 2015-16, 2014-15, 2013-
14, and 2012-13 respectively. Nestle has 30.74%, 19.98%, 41.75%, 47.16%, and 59.38% ROE
in the years 2016-17, 2015-16, 2014-15, 2013-14, and 2012-13 respectively. The ROE of GCPL
was 19.28%, 19.34%, 19.34%, 18.67%, and 18.50% in the years 2016-17, 2015-16, 2014-15,
2013-14, and 2012-13 respectively.
Interpretation: Return on equity highlights profitability status of the firm from the point of view
of shareholders. From the above observation of Return on Equity it is apparent that ROE of the
selected companies took a downward trend over the period of study, this shows that the
companies are not able to generate more profits for the shareholders. The ROE of ITC and HUL
shows a constant decreasing trend, whereas ROE of Britannia was in increasing trend till from
2012-13 to 2014-15 but after 2014-15 it started to decrease. The ROE of Nestle was lowest in the
year 2015-16 (19.98%) over its 5 year analysis but has increased in the year 2016-17. The ROE
of GCPL was stable over the 5 years. Out of the above analysis we can conclude that HUL is
performing better so far as the ROE is concerned and it has been followed by Britannia. The
performance of ITC and GCPL is constant over the Five years.
Table 2. Return on Assets (%) of the selected companies
Companies 2016-17 2015-16 2014-15 2013-14 2012-13
ITC 18.39 19.33 21.01 21.74 21.52
HUL 28.49 26.92 30.23 28.65 31.66
BRITANNIA 22.82 24.42 25.28 20.05 13.89
NESTLE 13.61 9.26 20.35 17.69 20.68
GCPL 13.71 14.71 13.29 12.59 12.49

15
Fig. 2 Column Graph showing Return on Assets (%) of the selected companies
Observation: From the above graph we observed that ROA of ITC was 18.39%, 19.33%,
respectively. The ROA of HUL was 28.49%, 26.92%, 30.23%, 28.6%5, and 31.66% in the years
2016-17, 2015-16, 2014-15, 2013-14, and 2012-13 respectively. The ROA of Britannia was
22.82%, 24.42%, 25.28%, 20.05%, and 13.89% in the years 2016-17, 2015-16, 2014-15, 2013-
14, and 2012-13 respectively. Nestle has 13.61%, 9.26%, 20.35%, 17.69%, and 20.68% ROA in
the years 2016-17, 2015-16, 2014-15, 2013-14, and 2012-13 respectively. The ROA of GCPL
2013-14, and 2012-13 respectively.
Interpretation: Return on Assets measures the firm’s ability to utilize its assets to create profit.
This ratio indicates how well a company is performing in making a profit from the capital it has
invested in fixed assets. From the above observation it is apparent that the ROA of ITC has
18.39
19.33
21.01
21.74 21.52
28.49
26.92
30.23
28.65
31.66
22.82
24.42
25.28
20.05
13.89
13.61
9.26
20.35
17.69
20.68
13.71
14.71
13.29
12.59 12.49
0
5
10
15
20
25
30
35
2016-17 2015-16 2014-15 2013-14 2012-13
Return on Assets (%)
ITC
HUL
BRITANNIA
NESTLE
GCPL

16
increased in the year 2013-14 but after that it took a decreasing trend and was lowest in the year
2016-17. The ROA of HUL shows a decreasing trend over the years. The ROA of Britannia,
Nestle & GCPL were very volatile over the five years. So as far as the Profitability in relation to
assets is concerned HUL is leading the position and it is being followed by Britannia. This may
be possible due to the superior performance of the management.
Table 3. Return on Capital Employed (%) of the selected companies
Companies 2016-17 2015-16 2014-15 2013-14 2012-13
ITC 21.07 27.27 28.53 30.65 30.63
HUL 56.00 75.35 83.49 83.93 93.70
BRITANNIA 32.36 43.43 49.41 41.74 28.68
NESTLE 17.91 12.23 26.53 22.49 26.53
GCPL 18.22 19.33 19.29 18.61 16.83
Fig. 3 Column Graph showing Return on Capital Employed (%) of the selected companies
Observation: From the above graph we observed that ROCE of ITC was 21.07%, 27.27%,
21.07
27.27 28.53
30.65 30.63
56
75.35
83.49 83.93
93.7
32.36
43.43
49.41
41.74
28.68
17.91
12.23
26.53
22.49
26.53
18.22 19.33 19.29
18.61
16.83
0
10
20
30
40
50
60
70
80
90
100
2016-17 2015-16 2014-15 2013-14 2012-13
Return on Capital Employed (%)
ITC
HUL
BRITANNIA
NESTLE
GCPL

17
respectively. The ROCE of HUL was 56.00%, 75.35%, 83.49%, 83.93%, and 93.70% in the
years 2016-17, 2015-16, 2014-15, 2013-14, and 2012-13 respectively. The ROCE of Britannia
2013-14, and 2012-13 respectively. Nestle has 17.91%, 12.23%, 26.53%, 22.49%, and 26.53%
ROCE in the years 2016-17, 2015-16, 2014-15, 2013-14, and 2012-13 respectively. The ROCE
of GCPL was 18.22%, 19.33%, 19.29%, 18.61%, and 16.83% in the years 2016-17, 2015-16,
2014-15, 2013-14, and 2012-13 respectively.
Interpretation: Return on capital employed highlights firm’s overall profitability. From the
above observation it is noticeable that the Return on Capital Employed of ITC & HUL has been
declining over the 5 years. This shows the decrease in shareholders earnings on further
borrowings. The ROCE of Britannia was the maximum in the year 2014-15 but it started to
decline after that year. The ROCE of Nestle was lowest in the year 2015-16 but has increased in
the year 2016-17. The ROCE of GCPL has decreased in comparison to fast few years. So far as
Return on Capital Employed is concerned HUL is leading followed by Britannia and ITC. The
Nestle and GCPL are showing almost same level of performance so far as Return on Capital
Employed is concerned.
Hence, we can conclude from the above profitability analysis that though high rate of volatility
has been found in each company’s profitability over the period of study but there remains no
doubt about the fact that HUL is leading the FMCG market and it is being followed by
Britannia.
3.2 Results and Discussion on Companies R & D Expenditure:
Table 4. R & D Expenditure Ratio (%) of the selected companies
Companies 2016-17 2015-16 2014-15 2013-14 2012-13
ITC 0.36 0.39 0.52 0.39 0.39
HUL 0.09 0.12 0.10 0.13 0.14
BRITANNIA 0.53 0.50 0.21 0.14 0.13
NESTLE 0.33 0.28 0.28 0.44 0.37
GCPL 0.17 0.19 0.18 0.16 0.15

18
Fig. 4 Column Graph showing R & D Expenditure Ratio (%) of the selected companies
Observation: From the above graph we observed that R&D Expenditure of ITC was 0.36%,
0.39%, 0.52%, 0.39%, and 0.39% of net revenue from operations in the years 2016-17, 2015-16,
2014-15, 2013-14, and 2012-13 respectively. The R&D Expenditure of HUL was 0.09%, 0.12%,
0.10%, 0.13%, and 0.14% of net revenue from operations in the years 2016-17, 2015-16, 2014-
15, 2013-14, and 2012-13 respectively. The R&D Expenditure of Britannia was 0.53%, 0.50%,
0.21%, 0.14%, and 0.13% net revenue from operations in the years 2016-17, 2015-16, 2014-15,
2013-14, and 2012-13 respectively. Nestle has R&D Expenditure of 0.33%, 0.28%, 0.28%,
0.44%, and 0.37% of net revenue from operations in the years 2016-17, 2015-16, 2014-15, 2013-
14, and 2012-13 respectively. The R&D Expenditure of GCPL was 0.17%, 0.19%, 0.18%,
0.16%, and 0.15% in the years 2016-17, 2015-16, 2014-15, 2013-14, and 2012-13 respectively.
Interpretation: The R&D Expenditure ratio shows the relationship between firm’s Research &
Development expenditure and Firm’s net revenue from operations. From the above observation it
is visible that over the period of the study all the companies under consideration making a very
minimal investment even less than 1% in research and development in comparison to their net
0.36
0.39
0.52
0.39 0.39
0.09
0.12
0.1
0.13
0.14
0.53
0.5
0.21
0.14
0.13
0.33
0.28 0.28
0.44
0.37
0.17
0.19
0.18
0.16
0.15
0
0.1
0.2
0.3
0.4
0.5
0.6
2016-17 2015-16 2014-15 2013-14 2012-13
R & D Expenditure Ratio (%)
ITC
HUL
BRITANNIA
NESTLE
GCPL

19
revenue from operation. Though investment made by the companies in R&D is very negligible
percentage but out of the selected companies, ITC and GCPL are making constant expenditure
towards their R&D over the past five years. In last two financial years it can be observed that
Britannia has raised their bar in its expenditure towards R&D. In case of HUL, over the years of
study it shows a declining trend Nestle is making a good expenditure on their R&D but has
decreased its expenditure in the recent years in comparison to past years.
Hence we can conclude from the above analysis that all the companies under consideration were
less concern about research and development expenditure. But, in order to combat with the
heated competition prevailing in the FMCG market they should raised their bar towards the
investment in R&D not only for their long run survival but also for the society they are serving.
3.3 Results and Discussion on Companies Advertisement Expenditure:
Table 5. Advertisement Expenditure Ratio (%) of the selected companies
Companies 2016-17 2015-16 2014-15 2013-14 2012-13
ITC 1.894 2.27 2.02 2.34 2.64
HUL 10.46 10.90 12.41 12.64 12.24
BRITANNIA 4.25 5.14 8.29 8.73 8.64
NESTLE 6.15 6.42 4.52 4.34 4.27
GCPL 9.94 14.89 14.57 14.58 13.91
1.894 2.27 2.02 2.34 2.64
10.46 10.9
12.41 12.64 12.24
4.25
5.14
8.29 8.73 8.64
6.15 6.42
4.52 4.34 4.27
9.94
14.89 14.57 14.58
13.91
0
2
4
6
8
10
12
14
16
2016-17 2015-16 2014-15 2013-14 2012-13
Advertisement Expenditure Ratio (%)
ITC
HUL
BRITANNIA
NESTLE
GCPL

20
Observation: From the above graph we observed that Advertisement Expenditure of ITC was
1.894%. 2.27%, 2.02%, 2.34%, and 2.64% of net revenue from operations in the years 2016-17,
2015-16, 2014-15, 2013-14, and 2012-13 respectively. The Advertisement Expenditure of HUL
was 10.46%, 10.90%, 12.41%, 12.64%, and 12.24% of net revenue from operations in the years
2016-17, 2015-16, 2014-15, 2013-14, and 2012-13 respectively. The Advertisement Expenditure
of Britannia was 4.25%, 5.14%, 8.29%, 8.73%, and 8.64% of net revenue from operations in the
years 2016-17, 2015-16, 2014-15, 2013-14, and 2012-13 respectively. Nestle has 6.15%, 6.42%,
4.52%, 4.34%, and 4.27% Advertisement Expenditure in the years 2016-17, 2015-16, 2014-15,
2013-14, and 2012-13 respectively. The Advertisement Expenditure of GCPL was 9.94%,
14.89%, 14.57%, 14.58%, and 13.91% of net revenue from operations in the years 2016-17,
2015-16, 2014-15, 2013-14, and 2012-13 respectively.
Interpretation: The Advertisement Expenditure ratio shows the relationship between firm’s
Advertisement Expenditure and Firm’s net revenue from operations. The contribution towards
Advertisement Expenditure of GCPL is maximum amongst all the five companies. From the
above observation, we conclude that ITC is making very less contribution towards its
advertisement in comparison to its sales and is minimal in the year 2016-17(1.894%) amongst its
5 year contribution. The HUL is making a good contribution towards its advertisement but has
decreased its expenditure in recent years. The Expenditure on Advertisement in comparison to
sales of Britannia shows a decreasing trend over the fast years. This shows that they are getting
good response from customers without making more expenditure on advertisement, so they are
reducing their expenditure on advertisement. The Nestle has increased its expenditure towards
Advertisement in order to reach more customers.
Hence we can conclude from the above analysis that in order to make customers aware about
their new products, its benefits and other relevant information each and every company under
consideration showing more or less concern towards the promotion and advertisement.

21
3.4 Table 5. Showing Correlation between Firm’s overall profitability (as measured by
ROCE) and R & D Expenditure Ratio (RDER)
(Using Karl Pearson’s Correlation Coefficient)
Sl.
no.
Companies Years ROC
E (X)
x = (X-
𝑿̅)
𝒙 𝟐 RDE
R (Y)
y =
(Y-𝒀̅)
𝒚 𝟐 xy
1 ITC
12-13
30.63
-6.3384 40.17531 0.39 0.1224
0.014
982 -0.77582
1 ITC
13-14
30.65
-6.3184 39.92218 0.39 0.1224
0.014
982 -0.77337
1 ITC
14-15
28.53
-8.4384 71.20659 0.52 0.2524
0.063
706 -2.12985
1 ITC
15-16
27.27
-9.6984 94.05896 0.39 0.1224
0.014
982 -1.18708
1 ITC
16-17
21.07
-15.8984 252.7591
0.36
0.0924
0.008
538 -1.46901
2 HUL
12-13 93.70 56.7316 3218.474 0.14 -0.1276
0.016
282 -7.23895
2 HUL
13-14 83.93 46.9616 2205.392 0.13 -0.1376
0.018
934 -6.46192
2 HUL
14-15 83.49 46.5216 2164.259 0.10 -0.1676
0.028
09 -7.79702
2 HUL
15-16 75.35 38.3816 1473.147 0.12 -0.1476
0.021
786 -5.66512
2 HUL
16-17 56.00 19.0316 362.2018 0.09 -0.1776
0.031
542 -3.38001
3 BRITANNIA
12-13
28.68
-8.2884 68.69757
0.13
-0.1376
0.018
934 1.140484
3 BRITANNIA
13-14 41.74 4.7716 22.76817 0.14 -0.1276
0.016
282 -0.60886
3 BRITANNIA
14-15 49.41 12.4416 154.7934 0.21 -0.0576
0.003
318 -0.71664
3 BRITANNIA
15-16 43.43 6.4616 41.75227 0.50 0.2324
0.054
01 1.501676
3 BRITANNIA
16-17 32.36 -4.6084 21.23735 0.53 0.2624
0.068
854 -1.20924
4 NESTLE
12-13 26.53 -10.4384 108.9602 0.37 0.1024
0.010
486 -1.06889
4 NESTLE
13-14 22.49 -14.4784 209.6241 0.44 0.1724
0.029
722 -2.49608
4 NESTLE
14-15 26.53 -10.4384 108.9602 0.28 0.0124
0.000
154 -0.12944
4 NESTLE
15-16 12.23 -24.7384 611.9884
0.28
0.0124
0.000
154 -0.30676
4 NESTLE
16-17
17.91
-19.0584 363.2226
0.33
0.0624
0.003
894 -1.18924
5 GCPL
12-13
16.83
-20.1384 405.5552
0.15
-0.1176
0.013
83 2.368276

22
5 GCPL
13-14
18.61
-18.3584 337.0309
0.16
-0.1076
0.011
578 1.975364
5 GCPL
14-15
19.29
-17.6784 312.5258
0.18
-0.0876
0.007
674 1.548628
5 GCPL
15-16 19.33 -17.6384 311.1132 0.19 -0.0776
0.006
022 1.36874
5 GCPL
16-17 18.22 -18.7484 351.5025 0.17 -0.0976
0.009
526 1.829844
∑X=
924.21
N = 25
𝑋̅ =
36.97
∑𝑥2
=
13,351.3
3
∑Y=
6.69
N =
25
𝑌̅ =
0.27
∑𝑦2
=
0.49
∑xy= -
32.87
r =
∑𝑥𝑦
√∑𝑥2.∑𝑦2
=
−32.87
√13351.33∗0.49
= - 0.41
Test of significance:
Student’s T test result:
Where,
d.f. = n-2
= 25-2
= 23
n = 25
Table value of t at 5 % level with 23 d.f = 2.069
t =
𝑟√𝑛−2
√1−𝑟2
=
−1.97
0.8319
= -2.37
│ t │= 2.37

23
Comment: There lies a significant negative relationship between Firm’s overall profitability (as
measured by ROCE) and R & D Expenditure Ratio (RDER) at 5% level of significance.
3.5 Table 6. Showing Correlation between Firm’s overall profitability (as measured by
ROCE) and Advertisement Expenditure Ratio (AER)
(Using Karl Pearson’s Correlation Coefficient)
Sl.
no.
Companies Years ROC
E (X)
x = (X-
𝑿̅)
𝒙 𝟐 AE
R
(Y)
y = (Y-
𝒀̅)
𝒚 𝟐 xy
1 ITC
12-13
30.63
-6.3384 40.17531 2.64 -5.29816
28.07
05 33.58186
1 ITC
13-14
30.65
-6.3184 39.92218 2.34 -5.59816
31.33
94 35.37141
1 ITC
14-15
28.53
-8.4384 71.20659 2.02 -5.91816
35.02
462 49.9398
1 ITC
15-16
27.27
-9.6984 94.05896 2.27 -5.66816
32.12
804 54.97208
1 ITC
16-17
21.07
-15.8984 252.7591
1.89
4 -6.04416
36.53
187 96.09247
2 HUL
12-13 93.70 56.7316 3218.474
12.2
4 4.30184
18.50
583 244.0503
2 HUL
13-14 83.93 46.9616 2205.392
12.6
4 4.70184
22.10
73 220.8059
2 HUL
14-15 83.49 46.5216 2164.259
12.4
1 4.47184
19.99
735 208.0372
2 HUL
15-16 75.35 38.3816 1473.147
10.9
0 2.96184
8.772
496 113.6802
2 HUL
16-17 56.00 19.0316 362.2018
10.4
6 2.52184
6.359
677 47.99465
3 BRITANNIA
12-13
28.68
-8.2884 68.69757
8.64
0.70184
0.492
579 -5.81713
3 BRITANNIA
13-14 41.74 4.7716 22.76817 8.73 0.79184
0.627
011 3.778344
3 BRITANNIA
14-15 49.41 12.4416 154.7934 8.29 0.35184
0.123
791 4.377453
3 BRITANNIA
15-16 43.43 6.4616 41.75227 5.14 -2.79816
7.829
699 -18.0806
3 BRITANNIA
16-17 32.36 -4.6084 21.23735
4.25
-3.68816
13.60
252 16.99652
4 NESTLE
12-13 26.53 -10.4384 108.9602 4.27 -3.66816
13.45
54 38.28972
4 NESTLE
13-14 22.49 -14.4784 209.6241 4.34 -3.59816
12.94
676 52.0956

24
4 NESTLE
14-15 26.53 -10.4384 108.9602 4.52 -3.41816
11.68
382 35.68012
4 NESTLE
15-16 12.23 -24.7384 611.9884
6.42
-1.51816
2.304
81 37.55685
4 NESTLE
16-17
17.91
-19.0584 363.2226
6.15
-1.78816
3.197
516 34.07947
5 GCPL
12-13
16.83
-20.1384 405.5552
13.9
1
5.97184
35.66
287 -120.263
5 GCPL
13-14
18.61
-18.3584 337.0309
14.5
8 6.64184
44.11
404 -121.934
5 GCPL
14-15
19.29
-17.6784 312.5258
14.5
7 6.63184
43.98
13 -117.24
5 GCPL
15-16 19.33 -17.6384 311.1132
14.8
9 6.95184
48.32
808 -122.619
5 GCPL
16-17 18.22 -18.7484 351.5025
9.94
2.00184
4.007
363 -37.5313
∑X=
924.21
N = 25
𝑋̅ =
36.97
∑𝑥2
=
13,351.3
3
∑Y=
198.
45
N =
25
𝑌̅ =
7.94
∑𝑦2
=
481.1
9
∑xy=
783.89
r =
∑𝑥𝑦
√∑𝑥2.∑𝑦2
=
783.89
√13351.33∗481.19
= 0.31
Test of significance:
Student’s T test result:
Where,
d.f. = n-2
= 25-2
= 23
n = 25

25
t =
𝑟√𝑛−2
√1−𝑟2
=
1.4867
0.9507
= 1.56
Comment: There lies a positive relationship between Firm’s overall profitability (as measured
by ROCE) and Advertisement Expenditure Ratio (AER) but it is significant neither at 5% nor, at
1% level of significance.

26
4. CONCLUSION & RECOMMENDATION
4.1 Conclusion
Profitability highlights company’s efficient performance. From the above study we can jumped
into the conclusion that though high rate of volatility has been found in each company’s
profitability over the period of study but Hindustan Unilever i.e. HUL outperformed other giant
players in the FMCG market and it is being followed by Britannia.
Moreover, the findings of the study revealed that there is a significant negative relationship
between Firm’s overall profitability (as measured by ROCE) and R & D Expenditure Ratio
(RDER). Though there is a positive relationship between Firm’s overall profitability (as
measured by ROCE) and Advertisement Expenditure Ratio (AER) but it is not significant.
4.2 Suggestions and Recommendations
 There should be increase in awareness regarding research and development.
 More spending should be done on research and development activities so far as long term
sustainability is concerned.
 Some sort of benefits should be given for encouragement to the firms who have
contributed towards research.
 Proper investigation and care should be taken while the company makes Advertisement
Expenditure.
4.3 Limitations
 The data collected was of normal time, it may differ in the times of financial crisis.
 The total study has been conducted on the basis of data collected from secondary sources
which has its own inherent limitations.
 As a sample size only 5 companies has been taken which is not the true representation of
population.
 The study covers only a period of 5 years which is not sufficient to show the trend accurately.

27
BIBLIOGRAPHY
Books
 Financial Management book by Subrata Kar & Nimai Bagchi.
 Financial Accounting book by Basu & Das.
Articles
 Chao-Hung Wang, 2011, “Clarifying the Effects of R&D on Performance: Evidence from
the High Technology Industries”, Asia Pacific Management Review vol. 16(1).
 Drucker P. 2005, “The Purpose of a Business.” New Zealand Management.
 Waseem Ahmed Khan & Aimen Ghaffar (Corresponding Author) (2014), “Impact of
Research and Development on Firm Performance”, International Journal of Accounting
and Financial Reporting 2014, Vol. 4, No. 1.
Webliography
 www.moneycontrol.com
 www.investopedia.com
 www.wikipedia.com
 www.google.com

Impact of R&D and advt. on companies performance.

Recommended

Recommended

More Related Content

What's hot

What's hot (18)

Similar to Impact of R&D and advt. on companies performance.

Similar to Impact of R&D and advt. on companies performance. (20)

Recently uploaded

Recently uploaded (20)

Impact of R&D and advt. on companies performance.