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

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- 1. Profitability Analysis of Dabur NepalSeminar in Working Capital Management www.themegallery.com LOGO
- 2. Introduction to Dabur Nepal Dabur Nepal Private Limited was established as an Independent Group Company in 1992 CEO: Mr. Udyan Ganguly General Products: Health Care • Dabur Chyawanprash • Dabur Honey Personal Care • Dabur Amla Hair Oil • Vatika Shampoo Food • Real Juice • Homemade Cooking Paste Annual Turnover: 52142.18 lacs (Approx.) Total Assets: 23784.33 lacs (Approx.) www.themegallery.com LOGO
- 3. Introduction to Dabur Nepal Certified Increased forStarted with the turnover HACCP 2012 Won the best prodn. of oil, by 19 % 2009 exporter dantmanjan & 2006 award other herbal 2004 products 2002 First 1998 SAP FMCG to 1994 launch its 1992 Best online manufacturing shopping Bought 300 & marketing portal Estd.i acres plot in company n1989 Banepa for Nursery www.themegallery.com LOGO
- 4. Working Capital Management WCM is a managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other Working capital requirement decides the liquidity and profitability of a firm Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses Key Aspects include, Liquidity Leverage Profitability Cash Conversion Cycle Size of the Firm www.themegallery.com LOGO
- 5. Objectives of the Study To analyze the relationship between Working Capital Efficiency and Profitability in Dabur Nepal To analyze the relationship between Liquidity and Profitability in Dabur Nepal To examine the relationship between Liquidity and Leverage of Dabur Nepal To examine the relationship between the size of the firm and profitability of Dabur Nepal www.themegallery.com LOGO
- 6. Issues The working capital policy is the firm’s policy about its working capital level and how its working capital should be financed… decisions about how much to keep in its cash account, what level of inventory to maintain, and how much to allow receivables to build up” (Danh, 1999) New Zealand Department of Treasury (2007) concluded that operating with more working capital than is necessary leads to over-investment which represents an unnecessary cost Vijaykumar and Venkatachalam (1995) concluded that liquidity was negatively associated with profitability Shin and Soeven (1998) and Koperunthevi (2010) found a negative relationship between cash conversion cycle and profitability Koperunthevi (2010) concluded that the working capital management very much influences profitability of manufacturing companies and increase in the cash conversion cycle leads to less profitability. www.themegallery.com LOGO
- 7. Methodology Population: 18 manufacturing companies listed in the Nepal Stock Exchange(NEPSE) market Sample: 1 sample company Observation: 5 Study Period: 2006-2010 (5 years) Data Extraction: Use of many secondary data, mainly the Annual Reports Balance Sheets Income Statements Techniques: Descriptive Statistics, Correlation Analysis and Regression Analysis Tools: MS - Excel www.themegallery.com LOGO
- 8. Variables Return on Assets (ROA) = Net Profit/ Total Assets Return on Equity (ROE) = Net Profit/ Total Equity Current Ratio = Current Assets / Current Liabilities Quick Ratio = (Current Assets – Inventories) / Current Liabilities Accounts Receivable Period (ARP) = (Accounts Receivable x 365) / Sales Inventories Turnover Period (ITP) = (Inventories x 365) / Cost of Goods Sold Account Payable Period (APP) = (Accounts Payable x 365) / Cost of Goods Sold Cash Conversion Cycle (CCC) = (ITP + ARP – APP) Debt Ratio (DR) = Total Debt/ Total Assets Size of the Firm = ln (Total Sales) www.themegallery.com LOGO
- 9. Study Models Quick Ratio ROA Size of Current the Ratio Firm Cash Conversion Model 2 Cycle ROA = α + β1QR+ β2CR+ β3Size+€ ITP Current Ratio ROE Return on Debt ratio Equity APP ARP Model 1CR = α + β1ROE+ β2DR+ β3CCC+€ Model 3 ROE = α + β1ITP+ β2APP+ β3ARP+€ www.themegallery.com LOGO
- 10. Statistical Result and Analysis www.themegallery.com LOGO
- 11. Liquidity Current Ratio Current Ratio 2.710 2.7942.025 1.621 1.6182006 2007 2008 2009 2010 www.themegallery.com LOGO
- 12. Cash Conversion Cycle Cash Conversion Cycle Cash Conversion Cycle 49.522 32.651 34.420 31.050 24.627 2006 2007 2008 2009 2010 www.themegallery.com LOGO
- 13. Profitability ROA ROA 35.6% 27.0% 29.4%15.4% 14.6%2006 2007 2008 2009 2010 www.themegallery.com LOGO
- 14. Leverage Debt Ratio Debt Ratio 0.413 0.389 0.2620.169 0.1402006 2007 2008 2009 2010 www.themegallery.com LOGO
- 15. Size of the Firm Size of the Firm Size of the Firm 10.211 10.227 10.105 9.998 9.873 2006 2007 2008 2009 2010 www.themegallery.com LOGO
- 16. Statistical Result and Analysis www.themegallery.com LOGO
- 17. Descriptive Statistics Current Quick ROA ROE Debt ITP APP ARP CCC Size Ratio Ratio Ratio Mean 2.154 0.977 0.244 0.759 0.275 107.587 112.756 39.623 34.454 10.083Standard 0.256 0.141 0.041 0.007 0.056 8.567 8.699 4.049 4.114 0.067 Error Median 2.025 0.870 0.270 0.765 0.262 101.172 117.718 36.276 32.651 10.105Standard 0.572 0.315 0.092 0.017 0.124 19.155 19.451 9.054 9.198 0.149DeviationMinimum 1.618 0.762 0.146 0.733 0.140 93.200 90.721 28.275 24.627 9.873Maximum 2.794 1.528 0.356 0.774 0.413 141.050 136.674 50.117 49.522 10.227 www.themegallery.com LOGO
- 18. Correlation Analysis Current Quick ROA ROE Debt ITP APP RP CCC Size Ratio Ratio Ratio Current 1.000 RatioQuick Ratio 0.634 1.000 ROA -0.058 -0.673 1.000 ROE 0.314 -0.054 -0.103 1.000Debt Ratio -0.719 -0.754 0.675 -0.359 1.000 ITP -0.134 -0.244 -0.371 0.612 -0.372 1.000 APP -0.798 -0.478 -0.310 -0.006 0.213 0.665 1.000 ARP -0.613 -0.407 0.502 -0.690 0.890 -0.677 0.035 1.000 CCC 0.805 0.102 0.377 0.608 -0.348 0.010 -0.696 -0.500 1.000 Size -0.024 -0.449 0.923 -0.426 0.669 -0.667 -0.448 0.674 0.223 1.000 www.themegallery.com LOGO
- 19. Statistical Result and Analysis www.themegallery.com LOGO
- 20. Model 1 Here, liquidity (current ratio) is Regression Statistics dependent variable. The Cash Multiple R 0.99 Conversion Cycle, Debt Ratio and R Square 0.97 ROE are independent variables Adjusted R Square 0.88 Standard Error 0.19 This means that 97% (approx) Observations 5.00 change in the dependent variable is explained by the change in the other 3 dependent variables Coefficie Standard t Stat P-value 19% is the adjustment factor for the nts Error accuracy of the dataIntercep 11.798 5.523 2.136 0.279 Positive changes in the CCC wouldt increase Current Ratio by 11.798CCC 0.053 0.014 3.944 0.158 unitsROE -14.179 7.520 -1.885 0.310Debt -2.617 0.851 -3.074 0.200 ROE is negatively related withRatio Current Ratio The Debt ratio is also negatively correlated with Current Ratio by 2.617 units The p-values of all CCC, ROE and Debt ratio have a p-value greater than 0.05 www.themegallery.com LOGO
- 21. Model 2 In this model, ROA, a measure of Regression Statistics profitability is the dependent variable Multiple R 1.00 and the independent variables are R Square 0.99 Quick Ratio, Current Ratio and the Adjusted R Square 0.96 Size of the Firm Standard Error 0.02 99% (approx) change in the Observations 5.00 dependent variables are explained by the change in the other 3 dependent variables Coefficie Standard t Stat P- At a level of 2%, which is the nts Error value adjustment factor for the accuracy ofIntercept -3.873 0.744 -5.203 0.121 the dataQuick Ratio -0.168 0.045 -3.749 0.166Current Ratio 0.052 0.022 2.351 0.256 With negative fluctuation in theSize of the 0.413 0.073 5.657 0.111 profitability measure, Quick RatioFirm would increase by -0.17 Current Ratio also seems to have a positive relationship with ROA The size of the firm is positively correlated with ROE as well. The level of risk present in this model is 0.02, i.e. 2%. www.themegallery.com LOGO
- 22. Model 3 In this model the ROE is the Regression Statistics dependent variable and the other Multiple R 0.86 independent variables are inventory R Square 0.74 turnover period, account payable Adjusted R Square -0.05 Standard Error 0.02 period and account receivable period Observations 5.00 74% change in the dependent variables is explained by the change in the other 3 dependent variables 2% is the adjustment factor for the Coefficie Standard t Stat P- accuracy of the data nts Error value Positive changes in the ITP wouldIntercept 0.653 0.166 3.931 0.159 increase ROE by 0.017 unitsITP 0.002 0.002 1.001 0.500APP -0.001 0.001 - 0.525 The APP is negatively related with 0.925 ROEARP 0.001 0.003 0.473 0.719 Account receivable period is positively correlated with ROE Level of risk presented in this model is 0.02, i.e. 2%. www.themegallery.com LOGO
- 23. Conclusion Dabur Nepal has significant Return of Assets as well. This is reflected in increasing profitability of Dabur Nepal. Average ROA is 0.244 (Approx) Leverage has negative correlation with liquidity as shown by negative correlation with Quick ratio and Current Ratio at -0.719 and -0.754 respectively. ROA, being a measure of profitability shows a negative correlation with both measures of liquidity, Current ratio as well as quick ratio, in -0.058 and -0.673. The Level of debt in Dabur Nepal had reached high levels some years ago, yet it has regained a better position recently. Average debt level lies at 0.275 (Approx) The size of the firm is increasing annually due to rise in sales of various products offered by Dabur Nepal. The Average size of the firm relative to its level of sales is 10.083 (Approx) www.themegallery.com LOGO
- 24. Conclusion Cash Conversion Cycle and Profitability: Positive Relationship Liquidity and Profitability : Negative Relationship Liquidity and Leverage : Negative Relationship Size of the firm and Profitability : Positive Relationship www.themegallery.com LOGO
- 25. www.themegallery.com LOGO

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