The document discusses working capital and its management. It defines working capital as the capital required for financing day-to-day business operations. Shortage of working capital can cause business failures while sufficient working capital is important for business success and liquidity. The document also discusses different types of working capital like permanent working capital and temporary working capital. It outlines the goals of working capital management as ensuring sufficient cash flow and balancing current assets and liabilities. Key factors that determine working capital requirements include the nature of industry, sales volume, inventory and receivables turnover, and the production cycle.

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WORKING CAPITAL
Every organisation commercial as well as non-commercial requires some amount of fixed
capital for procurement of fixed assets viz. land and building, plant and machinery, furniture
and fixtures, vehicles etc. In addition to fixed capital an organisation requires additional
capital for financing day to day activities. Such capital which is required for financing day
to day activities is called as working capital. Working capital is required for smooth conduct
of business activities. It is the working capital which decides success or failure of an
organisation. It is the life blood of an organisation.
Shortage of working capital has always been the biggest cause of business failure. Lack of
considerable foresight in planning working capital needs of the business has forced even
profitable business entities, the so called ‘blue-chip’ companies, to the brink of insolvency.
Working capital is the warm blood passing through the arteries and veins of the business
and sets it ticking. New firms windup for want of working capital. Even giants tumble like
pack of cards through the drying up of working capital reservoirs.
Liquidity and profitability are the two aspects of paramount importance in a business.
Liquidity depends on the profitability of business activities and profitability is hard to
achieve without sufficient liquid resources. Both these aspects are closely inter-related.
Control of working capital and forecasting working capital is a continuous process and
therefore, part and parcel of the overall management of the business.

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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.
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 management ensures a company has sufficient cash flow in order to
meet its short-term debt obligations and operating expenses.
DECISION CRITERIA
By definition, working capital management entails short-term decisions—generally, relating
to the next one-year periods—which are "reversible". These decisions are therefore not
taken on the same basis as capital-investment decisions (NPV or related, as above); rather,
they will be based on cash flows, or profitability, or both.
One measure of cash flow is provided by the cash conversion cycle—the net number of
days from the outlay of cash for raw material to receiving payment from the customer. As a
management tool, this metric makes explicit the inter-relatedness of decisions relating to
inventories, accounts receivable and payable, and cash. Because this number effectively
corresponds to the time that the firm's cash is tied up in operations and unavailable for other
activities, management generally aims at a low net count.
In this context, the most useful measure of profitability is return on capital (ROC). The
result is shown as a percentage, determined by dividing relevant income for the 12 months
by capital employed; return on equity (ROE) shows this result for the firm's shareholders.
Firm value is enhanced when, and if, the return on capital, which results from working-
capital management, exceeds the cost of capital, which results from capital investment
decisions as above. ROC measures are therefore useful as a management tool, in that they
link short-term policy with long-term decision making. See economic value added (EVA).

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Credit policy of the firm: Another factor affecting working capital management is credit
policy of the firm. It includes buying of raw material and selling of finished goods either in
cash or on credit. This affects the cash conversion cycle.
MANAGEMENT OF WORKING CAPITAL
Guided by the above criteria, management will use a combination of policies and techniques
for the management of working capital. The policies aim at managing the current assets
(generally cash and cash equivalents, inventories and debtors) and the short-term financing,
such that cash flows and returns are acceptable.
CASH MANAGEMENT: Identify the cash balance which allows for the business to
meet day to day expenses, but reduces cash holding costs.
INVENTORY MANAGEMENT: Identify the level of inventory which allows for
uninterrupted production but reduces the investment in raw materials—and minimizes
reordering costs—and hence increases cash flow. Besides this, the lead times in production
should be lowered to reduce Work in Process (WIP) and similarly, the Finished Goods
should be kept on as low level as possible to avoid over production—see Supply chain
management; Just In Time (JIT); Economic order quantity (EOQ); Economic quantity
DEBTORS MANAGEMENT: Identify the appropriate credit policy, i.e. credit terms
which will attract customers, such that any impact on cash flows and the cash conversion
cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see
Discounts and allowances.
SHORT-TERM FINANCING: Identify the appropriate source of financing, given
the cash conversion cycle: the inventory is ideally financed by credit granted by the
supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert
debtors to cash" through "factoring".

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WORKING CAPITAL CYCLE
Alternatively know as ‘Operating Cycle Concept’ of working capital. This concept is based
on the continuity of flow of funds through business operations. This flow of value is caused
by different operational activities during a given period of time. The operational activities of
an organisation may comprise:
a) purchase of raw materials,
b) conversion of raw materials into finished products,
c) sale of finished products and
d) realisation of accounts receivable.
Material cost is partly covered by trade credit from suppliers and successive operational
activities also involve cash flow. If the flow continues without any interruption, operational
activities of the company will also continue smoothly. A movement of cash through the
above process is called ‘circular flow of cash’. The period required to complete this flow is
called ‘the operating period’ or ‘the operating cycle’.
Raw Material
Creditors/ Bills
Payable
Process Work in
Progress
Finished
Goods
Sales
Debtors/
Bills
Receivables
Cash

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CLASSIFICATION OF WORKING CAPITAL
The working capital can be classified on different bases, depending on the purpose of
analysis.
Gross Working Capital (GWC):
Current assets in the balance sheet of a company are known as gross working capital.
Current assets are those short term assets which can be converted into cash within a period
of one year. The grey area in the management of current assets or gross working capital is
its unpredictability i.e. it is very difficult to ascertain the exact time of conversion of such
assets. Why such a nature is problematic? It is because the liabilities occur at their time and
CLASSIFICATION
OF WORKING
CAPITAL
Quatitative
Basis
Gross Working
Capital
Net Working
Capital
Initial
Working
Capital
Regular
Working
Capital
Time Basis
Permanent
Working
Capital
Seasonal
Working
Capital
Special
Working
Capital
Temporary
Working
Capital
Measurement
Basis
Positive
Working
Capital
Negative
Working
Capital
Accounting
Basis
Cash Working
Capital
Net Working
Caipat

6. 6
do not wait for our current asset to realize. This mismatch or the gap creates a need for
arranging working capital financing.
Net Working Capital (NWC):
Net working capital is a very frequently used term. There are two ways to understand net
working capital. First one says it is simply the difference of current assets and the current
liabilities in the balance sheet of a business. The other understanding discloses little deeper
or hidden meaning of the term. As per that, NWC is that part of current assets which are
indirectly financed by long term assets. Compared to gross working capital, net working
capital is considered more relevant for effective working capital financing and management.
Permanent / Fixed Working Capital:
Dealing with current asset and fixed assets is totally different. Determining the financing
requirement in case of fixed assets is simply the cost of the asset. Same is not true for
current assets because value of current assets is constantly changing and it is difficult to
accurately forecast that value at any point of time. To simplify the complexity to some
extent, on the basis of past trend and experience, we can find a level below which current
asset has never gone. The current assets below this level are called permanent or fixed
working capital.
Temporary / Variable Working Capital:
Temporary working capital is easy to understand after getting hold over permanent working
capital. In simple terms, it is the difference between net working capital and permanent
working capital. The main characteristic which can be made out from the example is
“fluctuation”. The temporary working capital therefore cannot be forecasted. In the interest
of measurability, this can be further bifurcated as below which can create at least some base
to forecast.
Seasonal Working Capital:
Seasonal working capital is that temporary increase in working capital which is caused due
to some relevant season for the business. It is applicable to businesses having impact of
seasons for example, manufacturer of sweaters for whom relevant season is the winters.

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Normally, their working capital requirement would increase in that season due to higher
sales in that period and then go down as collection from debtors is more than sales.
Special Working Capital:
Special working capital is that rise in temporary working capital which occurs due to a
special event which otherwise normally does not take place. It has no basis to forecast and
has rare occurrence normally. For example, country where Olympic Games are held, all the
business requires extra working capital due to sudden rise in business activity.
Cash Working Capital:
Cash working capital arises when the items regarding the working capital is collected from
the profit and loss account i.e. the items appearing in P&L A/c. It shows the real flow of
money and values at a particular time and is considered to be then more realistic approach
and having great significance to working capital management in recent years as it shows the
adequacy of cash flow in business. It is based on operating cycle concept.
The duration of time required to complete the different events like conversion of cash into
raw materials, raw material into work-in-progress, work-in-progress into finished goods,
finished goods to debtors and bill receivable through sales and conversion of bill receivable
to cash etc. in case of manufacturing firm.

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AIMS OF WORKING CAPITAL MANAGEMENT:
The goal of working capital management is to manage the firm’s current assets and
current liabilities in such a way that a satisfactory level of working capital is
maintained, to meet the short-term obligations as and when they arise.
1. A significant objective of working capital management is to ensure short-term
liquidity and to see that profitability is not affected by the way current assets
and current liabilities are managed.
2. The main theme of working capital management is the interaction between
the current assets and the current liabilities and arrives at the optimum level
of both. The optimum level thus arrived must have provision for contingencies.
3. Trade-off between Profitability and Risk: The level of a firm’s Net working
capital has a bearing on its profitability as well as risk. The term profitability
used in this context is measured by profits after expenses. The term risk is
defined as the probability that a firm will become technically insolvent so
that it will not be able to meet its obligations when they become due for
payment. The risk of becoming technically insolvent is measured using Net
Working Capital. The greater the net working capital, the more liquid the
firm is and therefore the less likelihood of it becoming technically insolvent.
The relationship between liquidity, net working capital and risk is such that if
either net working capital or liquidity increases, the firm's risk decreases.
4. Trade-off: If a firm wants to increase its profits, it must also increase its
risk. Inversely, if it decreases risk, its profitability too tends to decrease. The
trade-off between these variables is that regardless of how the firm increases
its profitability through the manipulation of working capital, the consequence
is a corresponding increase in risk as measured by the level of Net working
capital.
5. Apart from the profitability – risk – trade-off, another important ingredient of
the theory of working capital management is determining the financing mix.
Financing mix refers to the proportion of current assets that would be
financed by current liabilities and by long-term resources.

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FACTORS DETERMINING WORKING CAPITAL
REQUIREMENTS
A firm should plan its operations in such a way that it should have neither the lack of
working capital nor it should have excess of working capital. There is no set of rules or
formula to determine the working capital requirement but there are so many factors that
affect in determining the requirement of working capital. The factors mainly affect the size
and nature of industry and firm. These factors are also changing from time to time. In
general, following factors are affecting the requirement of working capital.
1. Nature of Industry:
The main factor which affects the requirement is the nature of the industry i.e. if the
industry is of small type there may be less need of cash, investment. On the other hand, if
the industry is of large type, the block cash etc. are kept on large basis. Even the goods and
raw materials are purchased and supplied on credit basis. Investing huge amount in fixed
assets, have the lowest needs for current assets, partly because of the cash nature of their
business and partly because of selling services instead of products. Thus, no funds will be
tied up in accounts receivables and inventories. On the other hand, trading and financial
firms have a very low investment in fixed assets but huge amount to be invested in working
capital.
2. Demand of creditors:
Creditors are the liability of any organization. They have interested in the assets of a
company and security of loans. They want their advances should be sufficiently covered.
This can only be possible when the assets are greater than its liabilities so that they may
easily get money as and when needed and at the time of maturity.
3. Cash Requirements:
Cash is a part of current assets. The company should maintain the minimum cash level. It
helps in the smoother functioning of business operation. It should be adequate and properly
utilized. It is both the means and end of enterprise. Just as blood, gives life to the human

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body, in the same way cash gives profit and solvency to the working capital structure of an
enterprise.
4. General nature of business:
The general nature of business is also as important determinant of working capital. Working
capital requirements are depend upon general nature and its activity to work. In public
utility services, the working capital requirement is relatively slow as the inventories and
goods rapidly change into cash. The large concerns that are engaged in production
maintenance, a big part of investment consists of working capital. They have to maintain
cash, inventory at very large level. Manufacturing organization, however face problems of
slow turnover of inventories and receivable and invest large amount in working capital. The
industrial concern should have a fairly large amount of working capital though it varies
from industry to industry depending on their assets structure.
5. Time:
This is also an important factor that affects the requirement of working capital. If the time
required in manufacturing goods is more (large), the investment in working capital is also
greater and if the time is less than the amount invested in working capital is also less.
Moreover, the amount of working capital depends upon inventory turnover and the unit cost
of goods that are sold. The greater the cost the larger is amount of working capital.
6. Volume of sales:
This is the most important factor affecting the requirement of working capital. A firm
maintains current assets because they are needed to support the operational activation,
which result in sales. The volume of sale and the size of the working capital are directly
related to each other. As the volume of sale increases the working capital investment
increases and vice versa.
7. Terms of purchase and sale:
If the credit terms of purchases are more favourable and those of sales less liberal, less cash
is invested in inventory. With more favourable credit terms, working capital requirements
can be reduced as the firms do get more time for payment to creditors or suppliers. The

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credit granting policy of a firm affects the working capital requirement by influencing the
size of account receivables.
8. Inventory Turnover:
If it is high, the working capital requirement will below. If it is low, working capital
requirement reduces. Managing working capital is synonymous with controlling inventories.
Good inventory management is helpful for the structure of working capital.
9. Receivable Turnover:
It is necessary to have an effective control over receivables. Prompt collection of
receivables and good facilities for setting payables result into low working capital
requirements obtain maximum sales; keep bad debt losses to minimum. Minimize the cost
of investment etc. are the objectives of receivables management.
10.Business cycle:
More working capital is required in the prosperity of business expansion and less working
capital required at the time of depression. In the period of prosperity, additional funds are
required to invest in plant and machinery to meet the increased demand. The depression
phase lead to fall in the level of inventories and book debts and so less working capital is
required. Business fluctuation influences the size of working capital mainly through the
effect of inventories.
11.Variation in Sales:
A seasonal business requires the maximum amount of working capital for a relatively short
period of time.
12.Production Cycle:
The time to convert raw material into finished goods is referred to as the production cycle or
operating cycle. The longer the duration, more working capital is required and lesser the
duration less working capital is required. So it is an important factor, which affects the
working capital requirement more working capital is required to finance the production
cycle.

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13. Liquidity and Profitability:
If firm is interested in maintaining the liquidity and wants to improve the liquidity, more
working capital is required. If a firm desires to take a greater risk for bigger gains and
losses, it reduces the size of its working capital in relation to its sales. A firm therefore
should choose between liquidity and profitability and decides about its working capital
requirement accordingly.
14.Profit planning and control:
Adequate profit assists in generation of cash. It makes it possible for management to plough
back apart of earning into the business and substantially build up internal financial
resources.
15.Activities of the firms:
A firm' policy regarding the sale also depends upon the requirement of working capital. If a
firm sells its goods to customer on credit basis, it requires more working capital as
compared to cash sales.
16.Production Policy:
There are two options open to the enterprise, either they confine their production only to
periods when goods are purchased or they follow a steady production policy throughout the
year. In former case, there will be serious production problems. During the slack season, the
firm will have to maintain the working force and physical facilities without adequate
production or sale. The programme accumulation of stock will naturally require an
increasing amount of working capital, which will remain tied up for some months.
17.Turnover of circulating capital:
Conversion of cash to inventory, inventory to finished goods, finished good to book debts
of account receivables, book debt to cash account play an important role in judging the
working capital requirement.

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18.Inherent hazards and contingencies:
An enterprise operating an industry subject to wide fluctuation in demand and prices for its
products, periodic operating losses or rapidly changing technology, requires additional
working capital.
19.Repayment ability:
Enterprise repayment ability determines the level of its working capital.
20.Availability of credit:
An enterprise which can get credit from bank and suppliers easily on favorable conditions
will operate with less working capital than an enterprise with such a facility.
21.Operational and Financial efficiency:
Working capital turnover can only be improved with a better operational and financial
efficiency of a firm.
22.Dividend Policy:
A shortage of working capital often acts as powerful reason for reducing or shipping a cash
dividend.
23.Value of current assets:
A decrease in the real value of current assets compared to their book value reduces the size
of the working capital. If real value of current assets increases, there will be an increase in
working capital.
24.Price level changes:
The rise price level will require an enterprise to maintain a higher amount of working
capital. The companies, which can immediately reverse their product prices with rising
price level, will not face a severe working capital problem.

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25. Gestation Period:
Certain industries have a long gestation period with a result that a considerable number of
years must elapse before production, operation can be carried on profitably. During this
period income is insufficient and working capital is greater.
26.Other factors:
In addition, absence of coordination in production and distribution policies in a company
results in a high demand for working capital.
The absence of specialization in the distribution of products may enhance the need of
working capital.
If the means of transport and communication in a country like India are not well developed,
the industries may face a great demand for working capital by keeping raw materials.
The import policy of the government may also effect requirement of working capital for the
companies as they have to arrange the funds for importing the goods at specified times.
The greater the amount of working capital lowers the amount of risk of liquidity.

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SOURCES OF WORKING CAPITAL
Long Term Sources of Working Capital Financing: Long term sources can also be divided
into internal and external sources. Long term internal sources of finance are retained profits
and provision for depreciation whereas external sources are share capital, long term loan, and
debentures.
Retained profits and accumulated depreciation are as good as funds available to the business
without any explicit cost. These are the funds completely earned and owned by the business
itself. They are utilized for expansion as well as working capital finance. Long term external
sources of finance like share capital is a cheaper source of finance but are not commonly used
for working capital finance.
Short Term Sources of Working Capital Finance: Short term sources can be further
divided into internal and external sources of working capital finance. Short term internal
sources include tax provisions, dividend provisions etc. Short term external sources include
short term working capital financing from banks such as bank overdrafts, cash credits, trade
deposits, bills discounting, short-term loans, inter-corporate loans, commercial paper, etc.
SOURCES OF
WORKING
CAPITAL
Long-term
Internal Sources
(Retained
Earnings)
External
Sources
(Equity, Loan)
Short-term
Internal Sources
(Accrual,
Depreciation
Funds)
External
Sources
(Trade Credit,
Advances)

16. 16
Short term working capital finance availed from banks and financial institutions are costly
compared to spontaneous and long term sources in terms of rate of interest but have great
time flexibility. Due to time flexibility, the finance manager can use the funds and pay
interest on the money which his business utilizes and can pay them any time when cash is
available. Overall, in comparison to long term sources where you have to hold funds even
when not required, these facilities proves cheaper.

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IMPORTANCE OF WORKING CAPITAL
Working capital is the life blood and nerve center of business. Working capital is very
essential to maintain smooth running of a business. No business can run successfully without
an adequate amount of working capital. The main advantages or importance of working
capital are as follows:
1. Strengthen the Solvency
Working capital helps to operate the business smoothly without any financial problem for
making the payment of short-term liabilities. Purchase of raw materials and payment of
salary, wages and overhead can be made without any delay. Adequate working capital helps
in maintaining solvency of the business by providing uninterrupted flow of production.
2. Enhance Goodwill
Sufficient working capital enables a business concern to make prompt payments and hence
helps in creating and maintaining goodwill. Goodwill is enhanced because all current
liabilities and operating expenses are paid on time.
3. Easy Obtaining Loan
A firm having adequate working capital, high solvency and good credit rating can arrange
loans from banks and financial institutions in easy and favorable terms.
4. Regular Supply of Raw Material
Quick payment of credit purchase of raw materials ensures the regular supply of raw
materials from suppliers. Suppliers are satisfied by the payment on time. It ensures regular
supply of raw materials and continuous production.
5. Smooth Business Operation
Working capital is really a life blood of any business organization which maintains the firm
in well condition. Any day to day financial requirement can be met without any shortage of
fund. All expenses and current liabilities are paid on time.
6. Ability to Face Crisis
Adequate working capital enables a firm to face business crisis in emergencies such as
depression.

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WORKING CAPITAL FINANCING POLICIES
A growing firm can be thought of as having a total assets requirement consisting of
the current assets and long term assets and long term assets for its efficient
operations. It seldom happens that net working capital goes to zero. As discussed earlier,
companies have some permanent working capital, which is the net working capital on
hand at the low point of the business cycle. Then, as sales increase, net working
capital must be increased, and this addition is the temporary part of net working
capital. The manner in which the permanent and temporary portions of net working
capital are financed is called as working capital financing policies.
MATURITY MATCHING/ SELF-LIQUIDATING APPROACH:-
Maturity matching means to match asset and liability maturities. This strategy minimizes
the risk that the firm will be unable to pay off its maturing obligations. To illustrate,
suppose a company arises a one year loan to and uses the funds obtained to build
and equip a plant. Obviously, cash flow from the plant (that is profits and
depreciation) would not be enough to pay off the loan at the end of only one year,
therefore the firm would be force to renew the loan. As a limiting case, the company
could try to match exactly the maturity of all of its assets and liabilities. For
example, inventory expected to be sold in 30 days could be financed with a 30 days
bank loan; and a 20 year building could be financed with a 20 year mortgage and so
on. In simple words, the source of finance use has same maturity as the life of the
assets for which the financing has been done. The policy looks quite useful as it
minimizes the wastage of funds. However, the risk that this policy entails is that if
the cash from the assets do not take place on time, the firm would not be able to
pay back and forced into renewal situation. The cost of funds for the renewal case
could be unattractive, and might it the profit of the company.
AGGRESSIVE APPROACH
a relatively aggressive company finances all of its long term assets and a part of
permanent net working capital with long term assets and rest permanent working

19. 19
capital with short term debt. The term ‘relatively’ has been used because there can
be different degrees of aggressiveness. For example, the dashed line in panel ‘b’
could have been drawn below the line showing long term assets, indicating that all of
the permanent net working capital even some part of long term assets have been
financed with short term debt; this would be a highly aggressive position, and the
firm would be very much exposed to dangers from rising interest rates as well as to
loan renewal problems. However, because short term debt is generally cheaper than
long term debt, some companies are ready to sacrifice safety for the chance of better
profit.
CONSERVATIVE APPROACH:-
permanent net working capital, meaning that long term sources have been employed
to finance all permanent assets and also to meet some of the temporary requirements.
The peak requirements could be met out of small amount of short term debt; but it
also finances a part of the seasonal needs by putting the money in marketable
securities. This approach, as the name suggests, is a very safe, conservative working
capital financing policy as there is no risk of going out of liquidity. However, since
long term debt is normally costlier, investments in cash and marketable securities are
zero net present value investments at best, the safety comes at the cost of lower
profits.

20. 20
BRITANNIA INDUSTRIES Ltd.
Britannia Industries Limited (A WADIA Enterprise) is an Indian food-products corporation
based in Bangalore, India. It sells its Britannia and Tiger brands of biscuit throughout India.
Britannia has an estimated market share of 38%.
The Company's principal activity is the manufacture and sale of biscuits, bread, rusk, cakes
and dairy products.
COMPANY’S PHILOSOPHY
Britannians have the highest respect for one another.
We encourage our people to work in cross functional teams with a concerted aim of sharing
knowledge.
We are accountable to ourselves for delivery to our consumers. We deliver continuous and
sustainable financial performance for the company and all its stakeholders.
COMPANY’S CORE VALUES
”It's not hard to make decisions when you know what your values are”. Those words capture,
in a nutshell, what we believe in. Our foundation is built on the core values that we stand by
and demonstrate through our actions every single day.
 LEADERSHIP
We have the courage to shape a better future for all our stakeholders.
 OWNERSHIP
We hold ourselves accountable for consistent, sustainable results by focusing on
opportunities & eliminating obstacles, internal or external.
 PASSION FOR LEARNING
We apply thought, creativity & sound business judgment to meet aggressive goals &
continually invest in people, products & processes.
 RESPECT
We value all stakeholders, our communities & the environment and treat them with
dignity and respect.

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HISTORY
The company was established in 1892, with an investment of Rs.295. Initially, biscuits were
manufactured in a small house in central Kolkata. Later, the enterprise was acquired by the
Gupta brothers mainly Nalin Chandra Gupta, a renowned attorney, and operated under the
name of "V.S. Brothers." In 1918, C.H. Holmes, an English businessman in Kolkata, was
taken on as a partner and The Britannia Biscuit Company Limited (BBCo) was launched. The
Mumbai factory was set up in 1924 and Peek Freans UK, acquired a controlling interest in
BBCo. Biscuits were in high demand during World War II, which gave a boost to the
company’s sales. The company name finally was changed to the current "Britannia Industries
Limited" in 1979. In 1982 the American company Nabisco Brands, Inc. acquired the parent
of Peek Freans and became a major foreign shareholder.
THE 'BISCUIT KING'
Kerala businessman Rajan Pillai secured control of the group in the late 1980s, becoming
known in India as the 'Biscuit King'. In 1993, the Wadia Group acquired a stake in
Associated Biscuits International (ABIL), and became an equal partner with Groupe Danone
in Britannia Industries Limited.
In what The Economic Times referred to as one of [India's] most dramatic corporate sagas,
Pillai ceded control to Wadia and Danone after a bitter boardroom struggle, then fled his
Singapore base to India in 1995 after accusations of defrauding Britannia, and died the same
year in Tihar Jail.
WADIA AND DANONE
The Wadias' Kalabakan Investments and Groupe Danone had two equal joint venture
companies, Wadia BSN and UK registered Associated Biscuits International Holdings Ltd.,
which together held a 51 per cent stake in Britannia. The ABIH tranche was acquired in 1992,
while the controlling stake held by Wadia BSN was acquired in 1995. It was agreed that, in
case of a deadlock between the partners, Danone was obliged to buy the Wadia BSN stake at
a "fair market value". ABIH had a separate agreement signed in 1992 and was subject to
British law.

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Wadia was to be Danone's wife's partner in the food and dairy business, and product launches
from Groupe Danone’s were expected but never materialised despite the JV being in
existence for over 11 years in India. Under the 1995 joint venture agreement, Danone is
prohibited from launching food brands within India without the consent of the Wadias. In
addition, the partners agreed there would be the right of first refusal to buy out the remaining
partner in the event of the other wishing to sell its holding.
In May 2007, Nusli Wadia told the Ministry of Commerce and Industry that Danone invested
in a Bangalore-based bio nutrition company, Avesthagen, in October 2006 in violation of the
government's Press Note 1, 2005, which requires a foreign company to obtain the consent of
its Indian joint venture partner before pursuing an independent business in a similar area,
including joint ventures based purely on technical collaboration. Danone argued that Press
Note 1 did not apply to it as it did not have a formal technology transfer or trademark
agreement with Avesthagen, and that its 25% holding in Britannia was indirect. Wadia also
filed a case in the Bombay High Court for a breach of a non-competition clause in that
connection. The court ordered Danone not to alienate, encumber or sell shares of Avesthagen.
In September 2007, the Foreign Investment Promotion Board of India rejected Danone's
claims that it did not need a non-compete waiver from the Wadias to enter into business in
India alone.
In June 2006, Wadia claimed Danone had used the Tiger brand to launch biscuits in
Bangalore.
After a prolonged legal battle, Danone agreed to sell its 25.48% stake in Britannia to Leila
Lands, which is a Wadia group entity based in Mauritius, and quit this line of business. The
deal was valued at $175–200 mn. With this buy-out, Wadia holds a majority stake of 50.96%.
GROWTH AND PROFITABILITY
Between 1998 and 2001, the company's sales grew at a compound annual rate of 16% against
the market, and operating profits reached 18%. More recently, the company has been growing
at 27% a year, compared to the industry's growth rate of 20%. At present, 90% of Britannia’s
annual revenue of Rs22 billion comes from biscuits.
Britannia is one of India's 100 Most Trusted brands listed in The Brand Trust Report.

23. 23
BUSINESS
DAIRY PRODUCTS
Dairy products contribute close to 10% to Britannia's revenue. Britannia trades and markets
dairy products and its dairy portfolio grew to 47% in 2000-01 and by 30% in 2001-02.
Britannia holds an equity stake in Dynamix Dairy and outsources the bulk of its dairy
products from its associate. Its main competitors are Nestlé India, the National Dairy
Development Board (NDDB), and Amul (GCMMF).
JOINT VENTURE WITH NEW ZEALAND DAIRY
On 27 October 2001, Britannia announced a joint venture with Fonterra Co-operative Group
of New Zealand, an integrated dairy company from procurement of milk to making value-
added products such as cheese and buttermilk. Britannia planned to source most of the
products from New Zealand, which they would market in India. The joint venture will allow
technology transfer to Britannia. Britannia and New Zealand Dairy each hold 49% of the JV,
and the remaining 2 per cent will be held by a strategic investor. Britannia has also tentatively
announced that its dairy business would be transferred and run by the joint venture.
The authorities' approval to the joint venture obliged the company to start manufacturing
facilities of its own. It would not be allowed to trade, except at the wholesale level, thus
pitching it in competition with Danone, which had recently established its own dairy
business.
BISCUITS
The company's factories have an annual capacity of 433,000 tonnes. The brand names of
biscuits include VitaMarieGold, Tiger, Nutrichoice Junior, Good day, 50-50, Treat, Pure
Magic, Milk Bikis, Good Morning, Bourbon, Thin Arrowroot, Nice, Little Hearts among
others.
Tiger, the mass market brand, realised $150.75 million in sales including exports to countries
including the U.S. and Australia, or 20% of Britannia revenues in 2006.

24. 24
In a separate dispute from the shareholder matters, the company alleged in 2006 that Danone
had violated its intellectual property rights in the Tiger brand by registering and using Tiger
in several countries without its consent. Britannia claimed the company found out that
Danone had launched the Tiger brand in Indonesia in 1998, and later in Malaysia, Singapore,
Pakistan and Egypt, when it attempted to register the Tiger trademark in some of these
countries in 2004. Whilst it was initially reported in December 2006 that agreement had been
reached, it was reported in September 2007 that a solution remained elusive. In the meantime
since Danone's biscuit business has been taken over by Kraft, the Tiger brand of biscuits in
Malaysia was renamed Kraft Tiger Biscuits in September 2008.
Britannia initiated legal action against Danone in Singapore in September 2007. The dispute
was resolved in 2009 with Britannia securing rights to the Tiger brand worldwide, and
Danone paying Rs220 million to utilise the brand.

25. 25
BALANCE SHEET
In crores
Particulars Mar'15 Mar'14
LIABILITIES
Share Capital 23.99 23.99
Reserves & Surplus 1211.63 829.47
Net Worth 1235.62 853.46
Secured Loan 4.30 4.62
Unsecured Loan .00 .00
TOTAL LIABILITIES 1239.92 858.08
ASSETS
Gross Block 986.66 929.10
(-) Acc. Depreciation 460.71 383.44
Net Block 525.95 545.66
Capital Work in Progress 48.22 97.22
Investments 661.04 372.99
Inventories 345.74 366.86
Sundry Debtors 70.98 53.69
Cash and Bank 186.67 65.78
Loans and Advances 623.39 342.24
Total Current Assets 1226.78 828.57
Current Liabilities 811.16 660.98
Provisions 410.91 325.38

26. 26
Total Current Liabilities 1222.07 986.36
NET CURRENT ASSETS 4.71 -157.79
Misc. Expenses .00 .00
TOTAL ASSETS(A+B+C+D+E) 1239.92 858.08

27. 27
PROFIT & LOSS
In crores
Particulars Mar'15 Mar'14
Sales Turnover 7344.79 6307.39
Excise Duty 168.80 .00
NET SALES 7175.99 6307.39
Other Income 0 0
TOTAL INCOME 7263.52 6342.21
Manufacturing Expenses 67.42 65.12
Material Consumed 4330.96 3822.76
Personal Expenses 176.79 172.45
Selling Expenses .00 .00
Administrative Expenses 1829.32 1650.44
Expenses Capitalised .00 .00
Provisions Made .00 .00
TOTAL EXPENDITURE 6404.49 5710.77
Operating Profit 771.50 596.62
EBITDA 859.03 631.44
Depreciation 117.27 63.38
Other Write-offs .00 .00
EBIT 741.76 568.06
Interest 1.21 5.44
EBT 740.55 562.62

28. 28
Taxes 260.20 172.79
Profit and Loss for the Year 480.35 389.83
Non Recurring Items 142.06 -20.00
Other Non Cash Adjustments .00 .00
Other Adjustments .00 .00
REPORTED PAT 622.41 369.83
Preference Dividend .00 .00
Equity Dividend 152.82 119.45
Equity Dividend (%) 637.01 497.91
Shares in Issue (Lakhs) 1199.26 1199.26
EPS - Annualised (Rs) 51.90 30.84

29. 29
CASH FLOW STATEMENT
In crores
Particulars Mar'15 Mar'14
Profit Before Tax 882.61 542.62
Net Cash Flow from Operating Activity 515.33 614.51
Net Cash Used in Investing Activity -384.29 -227.34
Net Cash Used in Financing Activity -168.11 -325.46
Net Inc/Dec In Cash and Cash Equivalent -37.07 61.71
Cash and Cash Equivalent - Beginning of the Year 54.69 -7.02
Cash and Cash Equivalent - End of the Year 17.62 54.69

30. 30
WORKING CAPITAL
In crores
Particulars March 2015 March 2014
Current assets:
Inventories 345.74 366.86
Sundry Debtors 70.98 53.69
Cash and Bank 186.67 65.78
Loans and Advances 623.39 342.24
Total Current Assets [A] 1226.78 828.57
Current Liabilities: 811.16 660.98
Provisions 410.91 325.38
Total Current Liabilities 1222.07 986.36
Working Capital 4.71 -157.79

31. 31
RATIOS
Current Ratio 1.00 0.84
Quick Ratio 0.70 0.47
Inventory Turnover Ratio 21.24 17.19
Debtors Turnover Ratio 115.12 96.44
Number of Days In Working Capital -2.70 -9.27

32. 32
CONCLUSION
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
Britannia Industries Limited (A WADIA Enterprise) is an Indian food-products corporation
based in Bangalore, India. It sells its Britannia and Tiger brands of biscuit throughout India.
Britannia has an estimated market share of 38%.
The Company's principal activity is the manufacture and sale of biscuits, bread, rusk, cakes
and dairy products.
Working capital of Britannia Industries Ltd. is Rs. 4.71 crores in 2015 whereas it was
negative in 2014 Rs. -157.79 crores. Number of days in working capital cycle is -2.70 in
2015.

33. 33
BIBLIOGRAPHY
 Advanced Financial Management- Seth Publications
 https://en.wikipedia.org/wiki/Working_capital
 http://www.efinancemanagement.com/working-capital-financing/types-of-working-
capital
 http://www.yourarticlelibrary.com/stock-exchange/12-main-factors-affecting-
working-capital/1050/
 http://www.efinancemanagement.com/working-capital-financing/sources-of-working-
capital
 https://en.wikipedia.org/wiki/Britannia_Industries
 http://britannia.co.in/about-us/overview
 http://britannia.co.in/careers/philosophy
 http://www.moneycontrol.com/financials/britanniaindustries/ratios/BI#BI