profitability analysis of dabur nepal
DESCRIPTION
Assignment, Seminar in Working Capital Management, BBA-BI 6th semester, Ace Institute of ManagementTRANSCRIPT
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Profitability Analysis of Dabur Nepal
Seminar in Working Capital Management
Chhitiz ShresthaBBA-BI ‘B’
Symbol no: 10450077Ace Institute of Management
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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.)
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Introduction to Dabur Nepal
Estd.in198
9
Started with the prodn. of oil,
dantmanjan & other herbal
products
1992
Bought 300 acres
plot in Banepa for
Nursery
Won the best
exporter award
Increased
turnover by 19 %
Best manufacturin
g & marketing company
Certified for
HACCP
SAPFirst
FMCG to launch
its online
shopping portal
19941998
20022004
20062009
2012
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Working Capital Management
WCM is a managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other
Working capital requirement decides the liquidity and profitability of a firm
Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses
Key Aspects include, Liquidity Leverage Profitability Cash Conversion Cycle Size of the Firm
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Objectives of the Study
To analyze the relationship between Working Capital Efficiency and Profitability in Dabur Nepal
To analyze the relationship between Liquidity and Profitability in Dabur Nepal
To examine the relationship between Liquidity and Leverage of Dabur Nepal
To examine the relationship between the size of the firm and profitability of Dabur Nepal
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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.
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Methodology
Population: 18 manufacturing companies listed in the Nepal Stock Exchange(NEPSE) market
Sample: 1 sample company Observation: 5 Study Period: 2006-2010 (5 years) Data Extraction: Use of many secondary data,
mainly the Annual Reports Balance Sheets Income Statements
Techniques: Descriptive Statistics, Correlation Analysis and Regression Analysis
Tools: MS - Excel
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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)
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Study Models
Current Ratio
ROA
ROE
Model 2ROA = α + β1QR+ β2CR+ β3Size+€
Model 1CR = α + β1ROE+ β2DR+ β3CCC+€ Model 3
ROE = α + β1ITP+ β2APP+ β3ARP+€
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Statistical Result and Analysis
Performance of Dabur Nepal
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Liquidity
2006 2007 2008 2009 2010
2.025
2.710
1.621 1.618
2.794
Current Ratio
Current Ratio
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Cash Conversion Cycle
2006 2007 2008 2009 2010
32.651 34.42031.050
24.627
49.522
Cash Conversion Cycle
Cash Conversion Cycle
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Profitability
2006 2007 2008 2009 2010
15.4% 14.6%
27.0% 29.4%35.6%
ROA
ROA
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Leverage
2006 2007 2008 2009 2010
0.169 0.140
0.413 0.389
0.262
Debt Ratio
Debt Ratio
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Size of the Firm
2006 2007 2008 2009 2010
9.8739.998
10.10510.211 10.227
Size of the Firm
Size of the Firm
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Statistical Result and Analysis
Descriptive Statistics &Correlation Analysis
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Descriptive Statistics
Current Ratio
Quick Ratio
ROA ROE Debt Ratio
ITP APP ARP CCC Size
Mean 2.154 0.977 0.244 0.759 0.275 107.587
112.756
39.623 34.454 10.083
Standard Error
0.256 0.141 0.041 0.007 0.056 8.567 8.699 4.049 4.114 0.067
Median 2.025 0.870 0.270 0.765 0.262 101.172
117.718
36.276 32.651 10.105
Standard Deviation
0.572 0.315 0.092 0.017 0.124 19.155 19.451 9.054 9.198 0.149
Minimum 1.618 0.762 0.146 0.733 0.140 93.200 90.721 28.275 24.627 9.873
Maximum 2.794 1.528 0.356 0.774 0.413 141.050
136.674
50.117 49.522 10.227
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Correlation Analysis
Current Ratio
Quick Ratio
ROA ROE Debt Ratio
ITP APP RP CCC Size
Current Ratio
1.000
Quick Ratio
0.634 1.000
ROA -0.058 -0.673 1.000ROE 0.314 -0.054 -0.103 1.000
Debt Ratio
-0.719 -0.754 0.675 -0.359 1.000
ITP -0.134 -0.244 -0.371 0.612 -0.372 1.000APP -0.798 -0.478 -0.310 -0.006 0.213 0.665 1.000
ARP -0.613 -0.407 0.502 -0.690 0.890 -0.677 0.035 1.000
CCC 0.805 0.102 0.377 0.608 -0.348 0.010 -0.696 -0.500 1.000
Size -0.024 -0.449 0.923 -0.426 0.669 -0.667 -0.448 0.674 0.223
1.000
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Statistical Result and Analysis
Regression Analysis
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Model 1
Here, liquidity (current ratio) is dependent variable. The Cash Conversion Cycle, Debt Ratio and ROE are independent variables
This means that 97% (approx) change in the dependent variable is explained by the change in the other 3 dependent variables
19% is the adjustment factor for the accuracy of the data
Positive changes in the CCC would increase Current Ratio by 11.798 units
ROE is negatively related with 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
Regression StatisticsMultiple R 0.99R Square 0.97Adjusted R Square 0.88Standard Error 0.19Observations 5.00
Coefficients
Standard Error
t Stat P-value
Intercept
11.798 5.523 2.136 0.279
CCC 0.053 0.014 3.944 0.158ROE -14.179 7.520 -1.885 0.310Debt Ratio
-2.617 0.851 -3.074 0.200
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Model 2
In this model, ROA, a measure of profitability is the dependent variable and the independent variables are Quick Ratio, Current Ratio and the Size of the Firm
99% (approx) change in the dependent variables are explained by the change in the other 3 dependent variables
At a level of 2%, which is the adjustment factor for the accuracy of the data
With negative fluctuation in the profitability measure, Quick Ratio 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%.
Regression StatisticsMultiple R 1.00R Square 0.99Adjusted R Square 0.96Standard Error 0.02Observations 5.00
Coefficients
Standard Error
t Stat P-value
Intercept -3.873 0.744 -5.203 0.121Quick Ratio -0.168 0.045 -3.749 0.166Current Ratio 0.052 0.022 2.351 0.256Size of the Firm
0.413 0.073 5.657 0.111
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Model 3
In this model the ROE is the dependent variable and the other independent variables are inventory turnover period, account payable period and account receivable period
74% change in the dependent variables is explained by the change in the other 3 dependent variables
2% is the adjustment factor for the accuracy of the data
Positive changes in the ITP would increase ROE by 0.017 units
The APP is negatively related with ROE
Account receivable period is positively correlated with ROE
Level of risk presented in this model is 0.02, i.e. 2%.
Regression StatisticsMultiple R 0.86R Square 0.74Adjusted R Square -0.05Standard Error 0.02Observations 5.00
Coefficients
Standard Error
t Stat P-value
Intercept 0.653 0.166 3.931 0.159ITP 0.002 0.002 1.001 0.500APP -0.001 0.001 -
0.9250.525
ARP 0.001 0.003 0.473 0.719
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Conclusion
Dabur Nepal has significant Return of Assets as well. This is reflected in increasing profitability of Dabur Nepal. Average ROA is 0.244 (Approx)
Leverage has negative correlation with liquidity as shown by negative correlation with Quick ratio and Current Ratio at -0.719 and -0.754 respectively.
ROA, being a measure of profitability shows a negative correlation with both measures of liquidity, Current ratio as well as quick ratio, in -0.058 and -0.673.
The Level of debt in Dabur Nepal had reached high levels some years ago, yet it has regained a better position recently. Average debt level lies at 0.275 (Approx)
The size of the firm is increasing annually due to rise in sales of various products offered by Dabur Nepal. The Average size of the firm relative to its level of sales is
10.083 (Approx)
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Conclusion
Cash Conversion Cycle and Profitability: Positive Relationship
Liquidity and Profitability : Negative Relationship
Liquidity and Leverage : Negative Relationship Size of the firm and Profitability : Positive
Relationship
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