Financial Statement Analysis Of Dabur 161m1h
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Financial Management Project On Financial statement analysis of DABUR INDIA LIMITED Submitted by: Dr. P.R. Wilson
Nimisha.M.N
Professor
MBA (FT), S2
SMS, CUSAT
DABUR INDIA LIMITED
Roll no.:23
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Table of Contents Table of Contents....................................................................................................... 2 1.INTRODUCTION........................................................................................................ 3 1.2 About Dabur India Limited.................................................................................... 4 Financial Analysis....................................................................................................... 6 TEN YEAR HIGHLIGHTS............................................................................................... 7 FINANCIAL RATIO ANALYSIS....................................................................................... 8 Cash flow and fund flow....................................................................................... 31 WORKING CAPITAL ANALYSIS................................................................................... 32 III . BREAK- EVEN ANALYSIS..................................................................................... 33 IV. INVESTMENT DECISION ANALYSIS.......................................................................35 CONCLUSION AND RECOMMENDATION....................................................................36 The company should reduce its variable cost to increase gross profit marginwhich is very low relatively other FMCG ................................................................................37 IV. INVESTMENT DECISION ANALYSIS……………………………………………….…………….31 1.5 CONCLUSION………………………………………………………………………………………. 33 1.4 REFERENCES……………………………………………………………………………………………… …………………………….. 35
DABUR INDIA LIMITED
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1. INTRODUCTION Financial management is that management activity which is concerned with the planning and controlling of the firm’s financial resources. Finance is the lifeblood of business. Wealth maximization is the objective of financial management in the new era. Other objective of financial management is to arrange sufficient finances for meeting short-term and long-term needs, these funds are procured at minimum cost and so that profitability of the business is maximized. The functional areas covered by financial management are: 1. Determining financial needs 2. Selecting the sources of funds 3. Financial analysis and interpretation. 4. Cost-volume profit analysis. 5. Capital budgeting. 6. Working capital management 7. Profit planning and control, and 8. Dividend policy.
In addition to raising funds, financial management is directly concerned with production, marketing and other functions within an organization whenever decisions are made about the acquisition or distribution of assets.
Objective : The objective of this project is to analyze the financial statement of DABUR INDIA LIMITED for the five consecutive years (2007-2011) and find out whether there was shareholders wealth maximization. Here the balance sheet and profit and loss of the firm has been analyzed by computing various financial ratios, working capital, break-even analysis and the investment decision .So the study has been conducted in four phases.
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1.2 About Dabur India Limited Dabur India Limited is a leading Indian consumer goods company with interests in health care, Personal care and foods. Over more than 100 years we have been dedicated to providing nature-based solutions for a healthy and holistic lifestyle. The original logo of the company was the Banyan Tree. The new Dabur identity modernizes the 100-year old equity of the Dabur brand by subtly transforming the tree. While it retains the essence of the banyan tree, it now projects a contemporary image, in consonance with today's lifestyle. The tree, a symbol of nature, is indelibly regarded as a provider of shelter, food and protection. If you observe closely, you will see that the tree trunk mirrors the form for three people with their arms raised conveying exultation in achievement. The broad trunk represents stability and its multiple branches represent growth.
Dabur At-a-Glance Dabur India Limited has marked its presence with significant achievements and today commands a market leadership status. Our story of success is based on dedication to nature, corporate and process hygiene, dynamic leadership and commitment to our partners and stakeholders. The results of our policies and initiatives speak for themselves.
DABUR INDIA LIMITED
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Leading consumer goods company in India with a turnover of Rs. 2834.11 Crore (FY09)
3 major strategic business units (SBU) - Consumer Care Division (CCD), Consumer Health Division (CHD) and International Business Division (IBD)
3 Subsidiary Group companies - Dabur International, Fem Care Pharma and newu and 8 step down subsidiaries: Dabur Nepal Pvt Ltd (Nepal), Dabur Egypt Ltd (Egypt), Asian Consumer Care (Bangladesh), Asian Consumer Care (Pakistan), African Consumer Care (Nigeria), Naturelle LLC (Ras Al KhaimahUAE), Weikfield International (UAE) and Jaquline Inc. (USA).
17 ultra-modern manufacturing units spread around the globe
Products marketed in over 60 countries
Wide and deep market penetration with 50 C&F agents, more than 5000 distributors and over2.8 million retail outlets all over India
Dabur India Ltd. - Corporate Profile Dabur India Ltd is one of India’s leading FMCG Companies with Revenues of US$1 Billion (over Rs 5,000 Crore) & Market Capitalisation of US$4 Billion (Rs 20,000 Crore). Building on a legacy of quality and experience of over 127 years, Dabur is today India’s most trusted name and the world’s largest Ayurvedic and Natural Health Care Company. Dabur India is also a world leader in Ayurveda with a portfolio of over 250 Herbal/Ayurvedic products. Dabur's FMCG portfolio today includes five flagship brands with distinct brand identities -- Dabur as the master brand for natural healthcare products, Vatika for personal care,Hajmola for digestives, Réal for fruit juices and beverages and Fem for fairness bleaches and skin care products. Dabur today operates in key consumer products categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care and Foods. The company has a wide distribution network, covering over 2.8 million retail outlets with a high penetration in both urban and rural markets. Dabur's products also have a huge presence in the overseas markets and are today available in over 60 countries across the globe. Its brands are highly popular in the Middle East, SAARC countries, Africa, US, Europe and Russia. Dabur's overseas revenue today s for over 30% of the total turnover.. The 125-year-old company, promoted by the Barman family, had started operations in 1884 as an Ayurvedic medicines company. From its humble beginnings in the by lanes of Calcutta, Dabur India Ltd has come a long way today to become one of the biggest Indian-owned consumer goods companies with the largest herbal and natural product portfolio in the world. Overall, Dabur has successfully transformed itself from being a family-run business to become a professionally managed enterprise. What sets Dabur apart from the crowd is its DABUR INDIA LIMITED
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ability to change ahead of others and to always set new standards in corporate governance & innovation. WORKING CAPITAL AND COST MANAGEMENT:
After running as a family business for over 100 years, when in late 1990s, the management of the Dabur was handed over to a team of professional managers, the new management faced a gigantic task of improving performance in several critical areas. In particular, working capital and cost management required urgent attention as the company's performance in these areas had been far from satisfactory. The then prevailing current ratio of 3:2 and quick ratio of 2:4 were considered too high and indicative of heavy unnecessary investments in working capital that would have a negative effect on company's profitability. Efforts to improve the working capital efficiency were met with stiff resistance from various quarters, but finally yielded results. The case study discusses the measures taken to improve the working capital and cost management performance, and how with concerted efforts the management turned around a highly inefficient working capital management into one of the most efficient in the FMCG sector of the Indian industry. In fact, the company seemed to have taken the matter to the other extreme of negative working capital, with the current ratio declining to 0:8 and the quick ratio to just 0.4 in 2008–09. In 2010- 2011 as the company was ready to launch itself into the next phase of fast growth, several critical issues related to the liquidity and solvency of the company.
Financial Analysis Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss . The nature of the analysis differ depending on the purpose of the analyst. •
Trade creditors are interested in firm’s ability to meet their claims over a very short period of time .They are interested in evaluating the firms' liquidity position.
•
Suppliers of the long term debt are concerned with the firm’s long term solvency and survival. They analyze the firm’s profitability over time, its ability to generate cash to be able to pay interest and repay principal and relationship between various sources of fund. The firm’s future profitability and the solvency are the prime concern.
•
Investors are more concerned about the firm’s earnings.
•
Management of the firm is interested in every aspect of the financial analysis. They see that the resources of the firm are most effectively and efficiently utilized and that the firm’s financial condition is sound.
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Dabur India Limited (Dabur) is a consumer care and health care products company. Product portfolio offered by the company includes personal care products, health care products, home care products and foods. Dabur also offers ayurveda-based healthcare products. It markets its products in India as well as in International markets as Middle East, South-East Asia, Africa, the European Union and America.
TEN YEAR HIGHLIGHTS in Rs. Crores
FY02*
FY03
FY04**
FY05
FY06#
FY07^
FY08
FY09
FY10
FY11^^
1,200
1,285
1,236
1,417
1,757
2,080
2,396
2,834
3,416
4,110
12
7
9
9
13
26
34
47
48
65
EBITDA
144
162
164
217
300
376
443
517
667
820
EBITDA Margins (%)
12.0
12.6
13.3
15.3
17.1
18.1
18.5
18.3
19.8
19.9
82
106
124
176
257
319
384
445
601
708
14
14
15
19
30
39
52
54
100
139
16.6
13.3
12.0
10.8
11.7
12.1
13.4
12.1
16.7
19.6
Profit After Tax (PAT)
64
85
107
156
214
282
333
391
501
569
PAT Margins (%)
5.4
6.6
8.6
11
12.2
13.5
13.9
13.8
14.7
13.8
371
257
250
295
512
379
465
559
677
1542
504
522
340
408
471
640
774
951
1106
1853
183
241
294
400
436
452
732
805
920
1458
Net Working Capital
322
281
46
8
35
189
42
146
186
395
Total Assets
705
640
433
543
624
670
749
1060
1129
2465
Share Capital
29
29
29
29
57
86
86
87
87
174
Reserves & Surplus
365
388
257
335
440
393
531
732
848
1217
Shareholders Funds
393
417
286
364
497
480
618
819
935
1391
Loan Funds
304
964
132
164
121
160
99
230
179
1051
705
640
433
543
624
670
749
1060
1129
2465
12.6
16.1
28.6
31.3
39
45.7
47.6
39.4
45.7
33.2
Operating Results: Sales Other Income
Profit Before Tax (PBT) Taxes Tax Rate (%)
Financial Position: Fixed Assets (Net) Current Assets, Loans & Advances Current Liabilities & Provisions
Total Capital Employed Return Ratios: ROCE (%)
DABUR INDIA LIMITED
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RONW (%)
16.6
20.6
38.1
43.5
46.1
61.3
55.3
47.7
53.5
48.9
2.3
3
3.7
5.4
3.7
3.3
3.9
4.5
5.8
3.3
0.5
1.4
2
2.5
1.8
1.4
1.5
1.8
2
1.3
28.6
28.6
28.6
28.6
57.3
86.3
86.4
86.5
86.9
174.1
Equity Share Data: Earnings Per Share (Rs) Dividend Per Share (Rs) No of Shares (In Crs)
FINANCIAL RATIO ANALYSIS Ratio analysis is a powerful tool of financial analysis. In financial analysis, a ratio is used as a bench mark for evaluating the financial position and performance of a firm. The relationship between the two ing figures, expressed mathematically, is known as a financial ratio .they help summarize large quantities of financial data and to make qualitative judgments about the firm’s financial performance. Types of ratios: A. Liquidity ratio: Liquidity ratios are used to measure the liquidity position or the short term financial position of a firm. They measure the ability of the firm to meet its current obligation .The failure to meet its current obligation will result in poor creditworthiness, loss of creditors, confidence etc. 1. Current ratio Current ratio
=
current asset Current liabilities
The ratio is used to assess the short term financial position of the business concern. It is an indicator of the firm’s ability to meet its short-term obligations. As a conventional, rule a current ratio of 2:1 is considered ideal. The company don’t have a sufficient funds to pay its liabilities on time and meet other day to day expenses
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Year
Current Current asset in liability crores in crores
Current ratios
2008
774
732
1.057
2009
1106
920
1.181
2010
951
805
1.202
2011
1853
1458
1.270
2.Quick ratio Quick ratio
= quick asset current liabilities
Where, Quick assets = Current assets – Inventory Year
Quick asset in crores
Current
2008 2009 2010 2011
570.96 547.4 533.6 918.54
crores 732 805 920 1458
liability
in Quick ratio .78 .68 .58 .63
A quick ratio of 1:1 is considered to be satisfied. Here, in this company it is not possible to meet the current liabilities with the quick assets. The values indicate that the inventories of the firm do not sell. None of the years indicate a satisfactory quick ratio except 2008 which shows a ratio of 0.78:1.The liquidity position of the company is not satisfactory. Debt equity ratio= Debt / Equity
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Year
Debt
equity
Debt-equity ratio
2008
342.41
396.89
.23
2009
312
412.77
.14
2010
204
262.06
.19
2011
284
332.26
03
.
B) Leverage ratio: These are calculated to judge the long term financial position of the firm. These ratios indicate the extent to which the firm has relation on debt in financing assets. These help measure the financial risk and the firm’s ability of using debt to shareholders advantage. These are also calculated from profit and loss items. A company can finance its assets either with equity or debt. 1. Debt ratio: The debt ratio shows the amount the lenders have financed in the company. It measures the long term solvency of the firm the amount of the funded debt in the capital structure. It is given by: Debt ratio =
Total Debt Capital employed
Long term debt = Secured loans + Unsecured loans and Capital employed =Share capital + Reserve and Surplus+ Secured loan + Unsecured loan Debt –Equity Ratio: The debt-equity ratio is an important tool of finance analysis to appraise the financial structure of the firm. It has important from the viewpoint of creditors, owner and the firm itself. T h e r a t i o r e f l e c t s t h e relative contribution of creditors and owners
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o f t h e b u s i n e s s i n i t s financing.A high ratio shows a large share of financing by the creditors of the firm; a low ratioimplies a small claim of creditors. The debtequity ratio indicates the margin of safety to the creditors. The shareholders of the firm would, however stand to gain in two ways: (i) with a limited s t a k e , t h e y w o u l d b e able to retain control of the firm and (ii) the return to them would be magnified. With a larger proportion of debt in the financial structure, the earnings available to the owner would increase more than proportionately with the increase in the operating profits of the firm.
Debt equity ratio =
Total Debt Net worth
2. Capital Employed to Net Worth: 3. Proprietary ratio: Proprietary ratio= Share holders equity Total assets
C) Activity / turnover ratios These ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. They are so called because they indicate the speed with which assets are being converted or turned over into sales.A proper balance indicate that the assets are being managed well. It also ties into the ability of a company to meet both its short term and long term obligations. It measures how well assets are used. The greater the turnover, the more effectively the company is at producing a benefit from its investment in assets. a) Inventory turnover ratio is regarded as a test of efficiency and indicates efficiency of the firm in producing and selling its product. This is given by:
Inventory turnover ratio = Cost of the goods sold Average Inventory DABUR INDIA LIMITED
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Average Inventory= opening +closing stock of finished goods 2
Days of inventory holding= 365/inventory turnover ratio Inventory turnover ratio = Sales / Avg. stock Year 2008 2009 2010 2011
Sales 1163.19 1370.85 1147.97 1268.71
Avg. stock 148.89 168.59 145.07 118.77
Ratio 7.81 7.30 7.91 10.68
b) Debtors turnover ratio indicates how many times in the period credit sales have been credited and collected on.
Debtors turnover ratio =
Credit sales Average Debtors
Collection period = 365/ Debtors turnover ratio
c) Current asset turnover ratio indicates the extent that the investment in current assets result in sales.
Current Asset turnover ratio = DABUR INDIA LIMITED
Sales
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Current asset
d) Fixed asset turnover ratio indicates the ability of the company’s management to put the fixed assets to work to generate sales.
Fixed asset turnover ratio =
Sales/ fixed asset
Year
Inventory
Debtors turnover Investment
Asset
2008 2009 2010 2011
turnover ratio 11.31 10.94 12.52 11.11
ratio 23.62 22.63 25.94 39.70
ratio 4.31 4.84 4.67 4.50
turnover ratio 11.31 10.94 12.52 13.44
turnover
Cost ratios
Cost ratios are computed to indicate the trend of the cost elements. It is calculated by dividing any item of expenditures from trading and profit and loss by net sales of the company. Different cost ratios include:
a) Material cost to sales ratio
= Materials consumed x 100
Net Sales DABUR INDIA LIMITED
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It measures the material usage efficiency. If ratio is computed it would indicate the material cost part in sales of the company.
b) Labour cost to sales ratio
= Labour cost x 100
Net sales
This ratio show the trend in labour efficiency if it is computed over a period of time from this ratio the extent of the labour cost in the total cost could be assessed.
c) Factory Overheads to sales ratio = Factory overhead x 100
Net sales
This ratio show the extent of factory overhead in sales and its total efficiency. Factory overhead is directly related to production and hence due weightage should be given to the quantity produced.
istration overhead seldom forms a major cost element. Ratio computed over a period of time show the efficiency level and the extent of its dominance in cost elements.
GROSS PROFIT RATIO: DABUR INDIA LIMITED
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Change in the gross margin can be brought about by changes in any of these factors. The gross margin represents the limit beyond which fall in sales prices are outside the tolerance limit. Further, the gross profit ratio can also be used to determining the extent of loss caused by theft, spoilage, damage, and so on in the case of those firms which follow the policy of fixed gross profit ratio in pricing their products.A v e r y h i g h a n d r i s i n g g r o s s m a r g i n m a y b e t h e r e s u l t o f u n s a t i s f a c t o r y b a s i s o f evaluation of stock, that is, overvalued of closing stock and undervalued of opening stock. But a low gross margin is also a danger signal, warranting a careful, detailed analysis of the factors responsible For it.
Gross profit ratio = Gross profit / sales *100
Year
Gross profit
Sales
Ratio
2008
560.05
1163.19
48.1%
2009
682.01
1370.85
49.7%
2010
553.91
1147.97
48.2%
2011
653.39
1268.71
51.5%
EARNING PER SHARE:
Earning per share = Profit after tax / Number of shares
Year
DABUR INDIA LIMITED
Profit after Tax
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Number of shares
EPS
2008
64.4
285366429
2.25
2009
93.03
285662514
3.25
2010
101.20
285987220
3.53
2011
148.01
286336927
5.16
Every business needs adequate liquid resources in order to maintain day to day cash flows. It needs enough cash to by wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate working capital; is not just important in the short term .Sufficient liquidity must be maintained in order to ensure the survival of business in the long term as well. Even a profitable business may fail if it does not have adequate cash flows to meet its liabilities as they fall a due. Therefore when business make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building etc, but must also take of the additional current assets that are usually involved with any expansion of activity .Increase production tends to engender a need to hold additional stocks of raw material & work in progress.Increased sales usually mean that the level of debtor will increase. A general increase in the firm’s scales of operation tends to imply a need for greater level of cash.
. D) Profitability ratios These are calculated to measure the operating efficiency of the firm.
Profitability ratios related to sales: DABUR INDIA LIMITED
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a) Gross profit margin: The gross profit indicates the efficiency by which the management produces each unit of product. This given by: Gross profit margin = Sales – cost of the goods sold Sales b) Net profit margin is the ratio of net profit to sales, and indicates how much of each rupee of sales is left over after all expenses. It indicates managements efficiency in manufacturing, istering and selling the products. Its an overall measure of the firm’s ability to turn each rupee sales into net profit. If net margin is inadequate, the firm will fail to achieve satisfactory return on shareholder’s funds.
Net profit ratio = Net profit x 100 Sales
Profitability ratios in relation to the investment:
c) Return on Equity (ROE) is calculated to see the profitability of owners investment. It indicates how well the firm has used the resources of the owners.
ROE =
Net profit x 100 Equity
Where , Equity = Share capital + Reserves & surplus
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d) Return on Investment (ROI) analysis is one of several commonly used approaches for evaluating the financial consequences of business investments, decisions, or actions. ROI analysis compares the magnitude and timing of investment gains directly with the magnitude and timing of investment costs. A high ROI means that investment gains compare favorably to investment costs.
ROI =
Net profit
x 100
Capital employed
Where , Capital employed = Total liabilities
e) Earning per share (EPS) indicate whether or not the firm’s earnings power on per share basis has changed over that period.
EPS =
Profit after tax
Number of common shares outstanding
f) Dividend per share(DPS) indicates whether or not to declare dividend after making profit.
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2008-09 Gross profit ratio 11.25 Net profit 8.82 Return on capital 29.50
09-10 14.35 11.67 49.79
10-11 15.64 13.80 49.47
employed Return on net worth Debts turnover ratio Fixed asset turnover
48.79 27.78 4.33
82.47 50.83 6.88
29.78 14.46 4.06
SWOT Analysis of Dabur India
SWOT stands for Strengths, Weaknesses, Opportunities and Threats, and is an important tool often used to highlight where a business or organisation is, and where it could be in the future. It looks at internal factors, the strengths and weaknesses of a business, and external factors, the opportunities and threats facing the business. The process can give you on overview of where the business, and the environment it operates in, is strategically. This is an important, yet to simple to understand, tool used by many students, businesses and organisations for analysis . The SWOT analysis will give you a clear picture of the business environment Dabur india is operating in at the present time . Strengths :The strengths of a business or organisation are positive elements, something they do well and is under their control . The strengths of a company or group and value to it, and can be what gives itthe edge in some areas over the competitors.
STRENGTH •
Having alliances with other strong and popular businesses is a major plus point for Dabur india as it helps bring in new customers and make business more effective.
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• •
Being a market leader, as Dabur india is, is key to their success as it boosts reputation, profit and market share. competitive pricing is a vital element of Dabur india’s overall success, as this keeps the minimum line with their rivals, if not above them.
•
Riding high in the niche market in FMCG industry has helped boost Dabur india and raise dreputation and turnover.
•
Keeping costs lower than their competitors and keeping the cost advantages helps Dabur india on some of the benefits to consumers.
•
The services/products offered by Dabur india are original, meaning many people will return to Dabur india to obtain them.
•
Dabur india’s marketing strategy has proved to be effective, helping to raise profiles and profits and standing out as a major strength.
•
Dabur india’s innovation keeps it a front-runner in FMCG as it is regularly turning out new patents/proprietary technology.
•
Experienced employees are key to the success of Dabur india helping to drive them forward with expertise and knowledge.
•
High quality machinery, staff, offices and equipment ensure the job is done to the utmost standard, and is a strength of Dabur india.
•
Dabur india has an extensive customer base, which is a major strength regarding sales and profit.
•
Dabur india’s reputation is strong and popular, meaning people view it with respect and believe in it.
•
Being financially strong helps Dabur India deal with any problems, ride any dip in profit sand out perform their rivals.
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•
A strong brand is an essential strength of Dabur India as it is recognized and respected.
•
Dabur India has a high percentage of the market share, meaning it is ahead of many competitors
•
Dabur India’s distribution chain can be listed as one of their strengths and links to success.
•
High quality products/services is a vital strength, helping to ensure customers return to Dabur India.
•
Dabur India’s international operations mean a wider customer base, a stronger brand and a bigger chunk of the global market.
•
Development and innovation are high at Dabur India with regard to their products/services, which is a sure strength in its overall performance.
•
Dabur India’s position in the market is high and strong – a major strength in this industry’s they are ahead of many rivals.
•
Having little competition, being one of very few companies providing thisservice/product is a major factor in Dabur India’s performance.
•
The online presence of Dabur India is strong, meaning it is ahead of many competitors.
•
The lucrative location of Dabur India adds to its strengths due to its accessibility (road, rail, air etc). Supplier relationships are strong at dabur india, which can only be seen as strength intheir overall performance.
WEAKNESS Weaknesses of a company or organization are things that need to be improved or perform better, which are under their control. DABUR INDIA LIMITED
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Weaknesses are also things that place you behind competitors, or stop you being able to meet objectives. •
Reputation is important, and a damaged one like Dabur India’s is a major weakness as consumers will not trust the firm enough to spend money with them.
•
A serious weakness for Dabur India is the fact their products/services are of low quality, meaning people will have better-quality substitutes.
•
Not reducing costs in the same way as their competitors means Dabur india is outlaying more of their profits. Having higher costs than competitors is a major weakness.
•
Dabur India’s R&D work is low and insignificant, which is a major weakness in FMCG as it is constantly creating new products.
•
The lack of staff experience is a major downfall for Dabur india as it could lead to mistakes or negligence.
•
Old and outdated technologies hold Dabur india back and limits success, as other firm sare making use of better and more reliable technologies.
•
Not having an effective marketing strategy seriously hampers the success of dabur india.
•
Over pricing, setting too high prices for dabur india products/services makes themuncompetitive, which is a major weakness.
•
The lack of business alliances is a major weakness for Dabur india, as they will struggle to get deals, favours and partnerships. Dabur india is in a poor financial position which makes it weaker than its competitors.
•
Dabur india’s lack of innovation limits its success, as there is no forward thinking.
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•
Good companies need loyal employees, but Dabur India has a poor relationship with staff which affects performance.
•
Dabur India does not function internationally, which has an effect on success, as they do not reach consumers in overseas markets.
•
Problems with stock are a weakness for Dabur India as they need to keep up with demand.
•
Online presence is vital for success these days, and lack of one is a limitation for Dabur India.
•
Dabur India underdeveloped distribution chain has a marked effect on performance as it affects the distribution of their products/services.
• •
The lack of original products/services is a major flaw in Dabur India’s future success, as it shows a blinkered outlook.
•
Dabur India's location is weakness for the firm, as it means they miss out on many opportunities.
•
Dabur India’s lack of patents proprietary technology puts it behind its rivals and is deemed as one of their weaknesses.
•
The weak brand name compromises success for Dabur India as it doesn't inspire people to buy their products/services.
•
A limited customer base is a major weakness for Dabur India as it means they have less people to sell or market to.
•
The weak market position of Dabur India is a limitation to their overall success, as they are well behind their rivals.
•
Dabur India’s limited product line is a major weakness.
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•
Dabur India’s weak supplier relationships also have an adverse effect on success, as it cut stability to negotiate.
•
Dabur India is behind its competitors with a low share of the market, which in turn leads to lower turnover.
Opportunities are external changes, trends or needs that could enhance the business or organization’s strategic position, or which could be of a benefit to them.
OPPORTUNITIES •
Dabur India could benefit from Governmental , in the form of grants, allowances, training etc.
•
Looking at export opportunities is a way for Dabur India to raise profits. Changes in technology could give Dabur India an opportunity to bolster future success.
•
Dabur India could benefit from expanding their online presence and making more money from online shoppers/internet s.
•
The changes in the way consumers spend and what they buy provides a big opportunity for Dabur India to explore.
•
Dabur India is in good financial position, which is an opportunity for them to explore in of investment in new projects.
•
Decrease in taxation gives an opportunity for Dabur India to reduce prices or increase profits.
•
The growth of the FMCG industry is an opportunity for Dabur India to grasp.
DABUR INDIA LIMITED
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•
New market opportunities could be a way to push Dabur India forward.
•
As the economic climate improves, so do the opportunities for Dabur India.
•
Dabur India has the opportunity to enter a niche market, gain leading position and therefore boost financial performance.
•
Reaching out into other markets is a possibility for Dabur India, and a big opportunity.
•
Grasping the opportunity to expand the customer base is something Dabur India can aim for, either geographically or through new products.
•
Takeover and merger opportunities could be explored for Dabur India and used to acquire new customers, new resources and enter new markets.
•
Expanding the product/service lines by Dabur India could help them raise sales and increase their product portfolio.
•
Reduction in interest rates could benefit Dabur India as business costs would come down.
•
Expanding into other markets could be a possibility for Dabur India.
•
Forming strategic alliances and t ventures is an opportunity for Dabur India to maximize profit and gain new business.
•
Dabur India has a number of highly skilled staff, which is an opportunity for them to explore as expertise of their staff can help Dabur India to bring the business forward.
•
Structural changes in the industry open other doors and opportunities for dabur india.
THREATS DABUR INDIA LIMITED
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Threats are factors which may restrict, damage or put areas of the business or organization at risk. They are factors which are outside of the company's control. Being aware of the threats and being able to prepare for them makes this section valuable when considering contingency plans and strategies. This section will outline main threats Dabur India is currently facing. •
Consumer lifestyle changes could lead to less of a demand for Dabur India products/services.
•
Tax increases placing additional financial burdens on Dabur India could be a threat.
•
The financial burden of increasing interest rates could be a threat to Dabur India.
•
Regulations requiring money to be spent or measures to be taken could put financial or other pressure on Dabur India.
•
New products/services from rival firms could lead to Dabur India's products/services being less in demand.
•
Changes in the way consumers shop and spend and other changing consumer patterns could be a threat to dabur India’s performance.
•
Being undercut by low-cost imports is a major threat for dabur India.
•
Not keeping up with changes in technology could be detrimental to the future of dabur india as they could slip behind their rivals.
•
Slow growth and decline of the fmcg market is a threat to dabur India.
•
Increased competition from overseas is another threat to dabur India as it could lead to lack of interest in their products/services.
DABUR INDIA LIMITED
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•
Extra competition and new competitors entering the market could unsteady dabur India and be a threat.
•
The actions of a competitor could be a major threat against dabur India, for instance, if they bring in new technology or increase their workforce to meet demand.
•
Price wars between competitors, price cuts and so on could damage profits for dabur India.
•
A slow economy or financial slowdown could have a major impact on dabur India business and profits.
•
A decline in demand for dabur India products, with no likelihood of resurgence could pose a threat. The rise and/or fall of the foreign exchange rate could threaten dabur India with regard to importing and exporting.
•
Rising costs could be a major downfall for dabur India as it would eat into profit.
•
Dabur India could be threatened by the growing power customers have to set the price of their products/services.
•
Structural changes in the industry could be a threat for dabur india Dabur India could be threatened by the growing power their suppliers have to set their prices.
•
•
Substitute products available on the market present a major threat to dabur india
2011
DABUR INDIA LIMITED
2010
2009
2008
Page 27
2007
Profitability ratio Operating Profit Margin(%)
19.06
19.17
18.33
18.6
17.45
Profit Before Interest And Tax Margin(%)
17.76
17.97
17.11
17.29
16.16
Gross Profit Margin(%)
17.91
18.06
17.19
17.37
17.49
Cash Profit Margin(%)
15.58
15.88
15.97
16.16
15.67
Adjusted Cash Margin(%)
15.58
15.88
15.97
16.16
15.51
Net Profit Margin(%)
14.27
15.03
15.44
15.06
14.41
Adjusted Net Profit Margin(%)
14.27
15.03
15.44
15.06
13.88
Return On Capital Employed(%)
44.16
61.62
47.98
67.51
66.07
Return On Net Worth(%)
46.29
58.04
51.2
61.58
62.52
Adjusted Return on Net Worth(%)
45.21
56.29
48.65
59.99
63.32
Return on Assets Excluding Revaluations
5.85
8.6
8.43
5.95
4.44
Return on Assets Including Revaluations
5.85
8.6
8.43
5.95
4.44
53.79
68.96
55.29
68.93
68.63
Return on Long Term Funds(%)
Liquidity And Solvency Ratios
DABUR INDIA LIMITED
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Current Ratio
0.99
0.93
1.19
0.91
0.97
Quick Ratio
0.78
0.68
0.99
0.58
0.63
Debt Equity Ratio
0.23
0.14
0.19
0.03
0.05
Long Term Debt Equity Ratio
0.01
0.02
0.03
0.01
0.01
Debt Coverage Ratios Interest Cover
56.06
52.35
38.34
46.79
140.69
Total Debt to Owners Fund
0.23
0.14
0.19
0.03
0.05
Financial Charges Coverage Ratio
50.47
42.53
31.26
36.56
69.48
Financial Charges Coverage Ratio Post Tax
41.66
36.46
28.99
32.87
64.33
Management Efficiency Ratios Inventory Turnover Ratio
8.65
11.31
10.94
12.52
11.11
Debtors Turnover Ratio
19.67
23.62
22.63
25.94
39.7
Investments Turnover Ratio
8.65
11.31
10.94
12.52
13.44
Fixed Assets Turnover Ratio
4.39
4.31
4.84
4.67
8.51
Total Assets Turnover Ratio
2.46
3.44
2.81
3.98
4.3
DABUR INDIA LIMITED
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Asset Turnover Ratio
4.39
4.31
4.84
4.67
4.5
Average Raw Material Holding
63.26
52.96
45.18
45.68
40.91
Average Finished Goods Held
29.32
22.08
21.28
20.13
22.21
Number of Days In Working Capital
26.7
3.76
41.32
-5.8
3.82
53.15
48.61
52.8
49.05
45.86
0.93
1.22
1.06
0.97
1.22
14.89
16.55
14.89
16.12
23.11
4.09
4.31
4.56
4.49
3.96
Dividend Payout Ratio Net Profit
49.42
46.86
47.41
47.86
55.24
Dividend Payout Ratio Cash Profit
44.32
43.13
43.74
43.54
49.63
49.4
51.67
50.11
50.87
42.64
Profit & Loss Ratios
Material Cost Composition
Imported Composition of Raw Materials Consumed
Selling Distribution Cost Composition
Expenses as Composition of Total Sales Cash Flow Indicator Ratios
Earning Retention Ratio
DABUR INDIA LIMITED
Page 30
Cash Earning Retention Ratio
54.74
55.64
54.16
55.41
48.66
0.49
0.23
0.36
0.05
0.07
Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Earnings Per Share
2.71
4.99
4.32
3.67
2.92
Book Value
6.33
8.64
8.53
6.11
4.67
AdjustedCas h Flow Times
(Rs crore)
Cash flow and fund flow
In financial ing, a cash flow statement, also known as statement of cash flows or funds flow statement is a financial statement that shows how changes in balance sheet s and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.[As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International ing Standard 7 (IAS 7), is the International ing Standard that deals with cash flow statements. People and groups interested in cash flow statements include:
ing personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses
Potential lenders or creditors, who want a clear picture of a company's ability to repay
Potential investors, who need to judge whether the company is financially sound
Potential employees or contractors, who need to know whether the company will be able to afford compensation Shareholders of the business.
Profit before tax
DABUR INDIA LIMITED
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Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
596.26
527.03
425.00
365.18
284.22
Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
338.61
481.49
323.57
313.29
234.43
-222.22
-267.54
-238.38
-179.77
-60.57
-87.89
-201.88
-9.77
-119.30
-168.06
Net inc/dec in cash and equivalent
28.50
12.07
75.42
14.22
5.79
Cash and equivalent begin of year
163.91
151.84
68.26
54.04
44.45
Cash and equivalent end of year
192.41
163.91
143.68
68.26
50.25
Net cash flow-operating activity Net cash used in investing activity Net cash used in fin. activity
WORKING CAPITAL ANALYSIS Working capital is the difference between the current assets and the current liabilities.net working capital may be positive or negative. When the current asset exceed the current liabilities there will be positive net working capital. A negative value occurs when the current liabilities exceed the current asset and liability.
Year
WORKING CAPITAL
CURRENT RATIO
2008
42
1.051
2009
146
1.181
2010
186
1.202
2011
395
1.270
DABUR INDIA LIMITED
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As working capital increases current ratio also increases.
III . BREAK- EVEN ANALYSIS This is a specific way of presenting the relationship between the cost, volume and profit. As an ultimate objective it helps management to seek the most profitable combination of cost and volume. The break even indicates the level of the sales at which the cost and revenues in equilibrium. The equilibrium point is called the breakeven point. It is a no profit no loss point. Total variable and fixed costs are compared with sales revenue in order to determine the level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the "break-even point"). Dabur India expects its loss-making retail business to break even in the next fiscal as it aims to cut costs through a revenue-sharing model under which it would give a percentage of its revenues to landowners, instead of rent. “Increasingly we are going for a revenue-sharing model in retail. So, instead of giving rent, we give a percentage of our revenues,” chief executive officer Sunil Duggal said. That model ensures faster break-even and is less risky, he said, adding some landlords have already begun to accept the new model. “Even this year the loss would be less than half of last year,” Duggal said. The retail arm had posted a loss of around Rs 24 crore in FY09. Dabur operates its retail business through its subsidiary H&B Stores Ltd and and operates a chain of beauty, health & wellness retail outlets under the brand name ‘’newu’’. The personal care and food products maker currently has 12 retail outlets across India. Any further expansion plans in retail would depend on the sucess of the revenue-sharing model, he said. Dabur is not keen on a price hike though it is concerned about rising material costs.
Break even point can be calculated by the following formula: BEP = Fixed cost P/V ratio Where P/V ratio
= (Contribution / Sales) x 100
Contribution
= Sales – Variable cost
Margin of safety
= Actual sales – Break even sales
Assumption of Break-Even Analysis; DABUR INDIA LIMITED
Page 33
1. All cost can be classified into fixed and variable costs. 2. Selling price does not change with the sales volume. 3. There is only one product or one constant sales mix. 4. All units produced are sold
The company had been confronting with huge accumulated losses so the break even point is hard to find. Due to the high cost of the material, firm was not able to meet the cost for the sales made so it was not able to make a profit out of it. And, thus to the firm more turnover will only incur more and more loss. The company is making a huge loss so it is better to abandon it. Dabur Foods Ltd, a fully owned subsidiary of Dabur India Ltd, will break even by the end of the current financial year. The company had reported a loss of Rs 8.3 crore on a turnover of Rs 37.12 crore in 2000-01. The company has projected to wipe out its accumulated losses in another three years' time.
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IV. INVESTMENT DECISION ANALYSIS The investment decisions of a firm can also be called as the capital budgeting, or capital expenditure decisions. It is a decision defined as the firm’s decision to invest its current funds most efficiently in the long-term assets in anticipation of an expected flow of benefits over a series of years. This is the most important decision to be made by the management in planning as it involves a high risk of the uncertainty in gaining the profit in the future. Ones made it cannot be reversed. The company, which signed an agreement with the Board of Investment of Sri Lanka for this venture, said in a statement that the investment marks its entry into the island nation. Dabur has set up Dabur Lanka Pvt Ltd, to be incorporated under its wholly-owned unit Dabur International, which handles overseas operations. "The demand for fruit-based juices and beverages under the Real brand has been reporting strong growth month-on-month. Dabur's food business had reported an over 28 percent growth in 2010/11 despite supply constraints," Chief Executive Sunil Duggal said. "As continued high growth is expected in the future too, we are setting up this new facility to augment our production capacity for fruit-based beverages and meet the growing demand." Duggal added. The new plant, which will be set up at Gampaha, north of Colombo, will have a monthly capacity of 280,000 cases and will be commissioned in Aug-Sept 2012. Dabur has manufacturing plants in Nepal, Bangladesh, Dubai, Nigeria, Egypt and Turkey among others. About 22 per cent of Dabur's sales come from international markets, including African nations, Nepal and Bangladesh. "Building manufacturing facility in Sri Lanka was an important strategic decision for Dabur as manufacturing presence here gives us a competitive edge that we intend to utilize in full," Duggal said. shares of the company were up 0.94 percent at 102.55 rupees in a firm Mumbai market. ($1=49.195 rupees)
Net Present Value (NPV) method is an economic method of evaluating the investment Proposals. It recognizes the time value of money. NPV = Present value of cash inflow – Present value of cash outflow Table 1.9 DABUR INDIA LIMITED
Page 35
Profitability index (PI)= present value of the cash inflow / outflow Calculation of the weighted average:
Cost of Debt
= Interest and financial charges x 100
Long term debts
In the table above the weights are given and the weighted average is calculated . The sum of the Debt and equity weighted average is taken and the this is found to be (3.07+.051= 3.12%). The PV values at 3% are taken for the five years and the inflow is discounted with the respective values\ as shown in the table Thus, NPV= =
-513199060 - 996777770.8 -609976831.7
Here, the NPV is negative so it is not feasible to invest in the project. PI= PV of cash inflow = -0.529 Outflow
Average rate of return= Average profit after tax = - 0.533 Average b/v of investment
CONCLUSION AND RECOMMENDATION DABUR INDIA LIMITED
Page 36
The financial statements of the firm for the five consecutive years(2010-2011) were analyzed and various ratios and analysis were done.
•
Through the ratio analysis of seven ired companies in the same sector. The various positive and negative results came out, on the basis of these results I would like to recommend that-
•
The company should try to increase the duration of the average collection period to compete with its competitors, by offering the customer high cost in credit sales.
•
The company should try to maintain its net worth for having satisfactory fund for equity share holders.
•
The company should give more emphasis to sufficient utilization of the resources and funds.
•
The company should improve the return on capital employed, as a source of long term fund.
The company should reduce its variable cost to p r o f i t m a r g i n which is very low relatively other FMCG
increase
gross
FINDINGS •
On the basis of data and available information. Certain findings arrived that relates the Ratio Analysis of the company. • It is observe that the Dabur India Ltd. has good profit margin and company’s l i q u i d i t y i s a l s o g o o d . I t h a s i m p o r t a n t f r o m t h e v i e w p o i n t o f c r e d i t o r s a n d shareholders’ that company have sufficient fund to pay them.
•
In the comparison of profitability ratio in Dabur India Ltd. the gross profit ratio14.35% and net profit ratio 11.67% both are increases in the year 2010-2011 in compare to last two year.
•
The current ratio 1.47% is also increase in the year 2010-2011 in compare to last two year. It shows that current assets increase over current liabilities.
DABUR INDIA LIMITED
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•
The debt equity ratio 0.45% is also increase in the year 2010-20011 in compare to last two year. It shows that a large share of financing by c r e d i t o r s i n t h e company, which is positive sign for the company.
•
The return on capital employed 49.47% is having little bit of decrease in 2005-2006 in compare to last year. But then also its better than some other FMCG companies. It shows that Dabur India Ltd. have sufficient sources of the long term funds.
•
The fixed assets turnover ratio 6.88% has increases in 2010-2011 compare to last two years. It shows the efficiency of Dabur India Ltd. in utilizing the fixed assets of the company, comparing with the previous period. It also shows that company has increases its investment in fixed assets.
•
The debtors’ turnover ratio 50.83% has increases in 2010-2011 in compare to last two years, which shows that Dabur India Ltd. is managing its credit very well. •
The average collection period is decreases to 10.16% in compare to last two years. This low average collection period shows a low cost in extending credit to
LIMITATIONS Although it has been my endeavor to take all necessary precautions to ensure that the i n f o r m a t i o n g a t h e r e d i s a u t h e n t i c a n d m a x i m u m f a c t s a r e p r e s e n t e d b u t I f a c e d c e r t a i n constraints while doing so. The constraints and limitations faced are as mentioned below: 1. Time: The nature of the report required detailed and meticulous information gathering. In this sense time was a limiting factor and a major constraint to accomplish the given task. Also sometimes the information was not available on time. This caused a lot of pilferage of time unnecessary of duplication of effort.
•
•
2.Human error: The provided by the company executives, consumers and others •
approached has been assumed to be correct. But there might have been wrong and biased facts given. The opinion of few cannot be generalized in any manner.
DABUR INDIA LIMITED
Page 38
•
•
3.Non cooperation: While by and large the people approached were helpful some people were non-cooperative. Also a lot of information was withheld due to its sensitive nature. 4.Calculation error: The report required calculation of figures and at last have to analysis them also, so mistake can be arises during calculations.
REFERENCES •
Financial Management BY Pandey , Vikas Publishing House Pvt. Ltd, New Delhi.
•
Financial Management theory and practice by Prasanna Chandra
•
www.dabur.com
•
www.google.com
DABUR INDIA LIMITED
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DABUR INDIA LIMITED
Page 40
Nimisha.M.N
Professor
MBA (FT), S2
SMS, CUSAT
DABUR INDIA LIMITED
Roll no.:23
Page 1
Table of Contents Table of Contents....................................................................................................... 2 1.INTRODUCTION........................................................................................................ 3 1.2 About Dabur India Limited.................................................................................... 4 Financial Analysis....................................................................................................... 6 TEN YEAR HIGHLIGHTS............................................................................................... 7 FINANCIAL RATIO ANALYSIS....................................................................................... 8 Cash flow and fund flow....................................................................................... 31 WORKING CAPITAL ANALYSIS................................................................................... 32 III . BREAK- EVEN ANALYSIS..................................................................................... 33 IV. INVESTMENT DECISION ANALYSIS.......................................................................35 CONCLUSION AND RECOMMENDATION....................................................................36 The company should reduce its variable cost to increase gross profit marginwhich is very low relatively other FMCG ................................................................................37 IV. INVESTMENT DECISION ANALYSIS……………………………………………….…………….31 1.5 CONCLUSION………………………………………………………………………………………. 33 1.4 REFERENCES……………………………………………………………………………………………… …………………………….. 35
DABUR INDIA LIMITED
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1. INTRODUCTION Financial management is that management activity which is concerned with the planning and controlling of the firm’s financial resources. Finance is the lifeblood of business. Wealth maximization is the objective of financial management in the new era. Other objective of financial management is to arrange sufficient finances for meeting short-term and long-term needs, these funds are procured at minimum cost and so that profitability of the business is maximized. The functional areas covered by financial management are: 1. Determining financial needs 2. Selecting the sources of funds 3. Financial analysis and interpretation. 4. Cost-volume profit analysis. 5. Capital budgeting. 6. Working capital management 7. Profit planning and control, and 8. Dividend policy.
In addition to raising funds, financial management is directly concerned with production, marketing and other functions within an organization whenever decisions are made about the acquisition or distribution of assets.
Objective : The objective of this project is to analyze the financial statement of DABUR INDIA LIMITED for the five consecutive years (2007-2011) and find out whether there was shareholders wealth maximization. Here the balance sheet and profit and loss of the firm has been analyzed by computing various financial ratios, working capital, break-even analysis and the investment decision .So the study has been conducted in four phases.
DABUR INDIA LIMITED
Page 3
1.2 About Dabur India Limited Dabur India Limited is a leading Indian consumer goods company with interests in health care, Personal care and foods. Over more than 100 years we have been dedicated to providing nature-based solutions for a healthy and holistic lifestyle. The original logo of the company was the Banyan Tree. The new Dabur identity modernizes the 100-year old equity of the Dabur brand by subtly transforming the tree. While it retains the essence of the banyan tree, it now projects a contemporary image, in consonance with today's lifestyle. The tree, a symbol of nature, is indelibly regarded as a provider of shelter, food and protection. If you observe closely, you will see that the tree trunk mirrors the form for three people with their arms raised conveying exultation in achievement. The broad trunk represents stability and its multiple branches represent growth.
Dabur At-a-Glance Dabur India Limited has marked its presence with significant achievements and today commands a market leadership status. Our story of success is based on dedication to nature, corporate and process hygiene, dynamic leadership and commitment to our partners and stakeholders. The results of our policies and initiatives speak for themselves.
DABUR INDIA LIMITED
Page 4
Leading consumer goods company in India with a turnover of Rs. 2834.11 Crore (FY09)
3 major strategic business units (SBU) - Consumer Care Division (CCD), Consumer Health Division (CHD) and International Business Division (IBD)
3 Subsidiary Group companies - Dabur International, Fem Care Pharma and newu and 8 step down subsidiaries: Dabur Nepal Pvt Ltd (Nepal), Dabur Egypt Ltd (Egypt), Asian Consumer Care (Bangladesh), Asian Consumer Care (Pakistan), African Consumer Care (Nigeria), Naturelle LLC (Ras Al KhaimahUAE), Weikfield International (UAE) and Jaquline Inc. (USA).
17 ultra-modern manufacturing units spread around the globe
Products marketed in over 60 countries
Wide and deep market penetration with 50 C&F agents, more than 5000 distributors and over2.8 million retail outlets all over India
Dabur India Ltd. - Corporate Profile Dabur India Ltd is one of India’s leading FMCG Companies with Revenues of US$1 Billion (over Rs 5,000 Crore) & Market Capitalisation of US$4 Billion (Rs 20,000 Crore). Building on a legacy of quality and experience of over 127 years, Dabur is today India’s most trusted name and the world’s largest Ayurvedic and Natural Health Care Company. Dabur India is also a world leader in Ayurveda with a portfolio of over 250 Herbal/Ayurvedic products. Dabur's FMCG portfolio today includes five flagship brands with distinct brand identities -- Dabur as the master brand for natural healthcare products, Vatika for personal care,Hajmola for digestives, Réal for fruit juices and beverages and Fem for fairness bleaches and skin care products. Dabur today operates in key consumer products categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care and Foods. The company has a wide distribution network, covering over 2.8 million retail outlets with a high penetration in both urban and rural markets. Dabur's products also have a huge presence in the overseas markets and are today available in over 60 countries across the globe. Its brands are highly popular in the Middle East, SAARC countries, Africa, US, Europe and Russia. Dabur's overseas revenue today s for over 30% of the total turnover.. The 125-year-old company, promoted by the Barman family, had started operations in 1884 as an Ayurvedic medicines company. From its humble beginnings in the by lanes of Calcutta, Dabur India Ltd has come a long way today to become one of the biggest Indian-owned consumer goods companies with the largest herbal and natural product portfolio in the world. Overall, Dabur has successfully transformed itself from being a family-run business to become a professionally managed enterprise. What sets Dabur apart from the crowd is its DABUR INDIA LIMITED
Page 5
ability to change ahead of others and to always set new standards in corporate governance & innovation. WORKING CAPITAL AND COST MANAGEMENT:
After running as a family business for over 100 years, when in late 1990s, the management of the Dabur was handed over to a team of professional managers, the new management faced a gigantic task of improving performance in several critical areas. In particular, working capital and cost management required urgent attention as the company's performance in these areas had been far from satisfactory. The then prevailing current ratio of 3:2 and quick ratio of 2:4 were considered too high and indicative of heavy unnecessary investments in working capital that would have a negative effect on company's profitability. Efforts to improve the working capital efficiency were met with stiff resistance from various quarters, but finally yielded results. The case study discusses the measures taken to improve the working capital and cost management performance, and how with concerted efforts the management turned around a highly inefficient working capital management into one of the most efficient in the FMCG sector of the Indian industry. In fact, the company seemed to have taken the matter to the other extreme of negative working capital, with the current ratio declining to 0:8 and the quick ratio to just 0.4 in 2008–09. In 2010- 2011 as the company was ready to launch itself into the next phase of fast growth, several critical issues related to the liquidity and solvency of the company.
Financial Analysis Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss . The nature of the analysis differ depending on the purpose of the analyst. •
Trade creditors are interested in firm’s ability to meet their claims over a very short period of time .They are interested in evaluating the firms' liquidity position.
•
Suppliers of the long term debt are concerned with the firm’s long term solvency and survival. They analyze the firm’s profitability over time, its ability to generate cash to be able to pay interest and repay principal and relationship between various sources of fund. The firm’s future profitability and the solvency are the prime concern.
•
Investors are more concerned about the firm’s earnings.
•
Management of the firm is interested in every aspect of the financial analysis. They see that the resources of the firm are most effectively and efficiently utilized and that the firm’s financial condition is sound.
DABUR INDIA LIMITED
Page 6
Dabur India Limited (Dabur) is a consumer care and health care products company. Product portfolio offered by the company includes personal care products, health care products, home care products and foods. Dabur also offers ayurveda-based healthcare products. It markets its products in India as well as in International markets as Middle East, South-East Asia, Africa, the European Union and America.
TEN YEAR HIGHLIGHTS in Rs. Crores
FY02*
FY03
FY04**
FY05
FY06#
FY07^
FY08
FY09
FY10
FY11^^
1,200
1,285
1,236
1,417
1,757
2,080
2,396
2,834
3,416
4,110
12
7
9
9
13
26
34
47
48
65
EBITDA
144
162
164
217
300
376
443
517
667
820
EBITDA Margins (%)
12.0
12.6
13.3
15.3
17.1
18.1
18.5
18.3
19.8
19.9
82
106
124
176
257
319
384
445
601
708
14
14
15
19
30
39
52
54
100
139
16.6
13.3
12.0
10.8
11.7
12.1
13.4
12.1
16.7
19.6
Profit After Tax (PAT)
64
85
107
156
214
282
333
391
501
569
PAT Margins (%)
5.4
6.6
8.6
11
12.2
13.5
13.9
13.8
14.7
13.8
371
257
250
295
512
379
465
559
677
1542
504
522
340
408
471
640
774
951
1106
1853
183
241
294
400
436
452
732
805
920
1458
Net Working Capital
322
281
46
8
35
189
42
146
186
395
Total Assets
705
640
433
543
624
670
749
1060
1129
2465
Share Capital
29
29
29
29
57
86
86
87
87
174
Reserves & Surplus
365
388
257
335
440
393
531
732
848
1217
Shareholders Funds
393
417
286
364
497
480
618
819
935
1391
Loan Funds
304
964
132
164
121
160
99
230
179
1051
705
640
433
543
624
670
749
1060
1129
2465
12.6
16.1
28.6
31.3
39
45.7
47.6
39.4
45.7
33.2
Operating Results: Sales Other Income
Profit Before Tax (PBT) Taxes Tax Rate (%)
Financial Position: Fixed Assets (Net) Current Assets, Loans & Advances Current Liabilities & Provisions
Total Capital Employed Return Ratios: ROCE (%)
DABUR INDIA LIMITED
Page 7
RONW (%)
16.6
20.6
38.1
43.5
46.1
61.3
55.3
47.7
53.5
48.9
2.3
3
3.7
5.4
3.7
3.3
3.9
4.5
5.8
3.3
0.5
1.4
2
2.5
1.8
1.4
1.5
1.8
2
1.3
28.6
28.6
28.6
28.6
57.3
86.3
86.4
86.5
86.9
174.1
Equity Share Data: Earnings Per Share (Rs) Dividend Per Share (Rs) No of Shares (In Crs)
FINANCIAL RATIO ANALYSIS Ratio analysis is a powerful tool of financial analysis. In financial analysis, a ratio is used as a bench mark for evaluating the financial position and performance of a firm. The relationship between the two ing figures, expressed mathematically, is known as a financial ratio .they help summarize large quantities of financial data and to make qualitative judgments about the firm’s financial performance. Types of ratios: A. Liquidity ratio: Liquidity ratios are used to measure the liquidity position or the short term financial position of a firm. They measure the ability of the firm to meet its current obligation .The failure to meet its current obligation will result in poor creditworthiness, loss of creditors, confidence etc. 1. Current ratio Current ratio
=
current asset Current liabilities
The ratio is used to assess the short term financial position of the business concern. It is an indicator of the firm’s ability to meet its short-term obligations. As a conventional, rule a current ratio of 2:1 is considered ideal. The company don’t have a sufficient funds to pay its liabilities on time and meet other day to day expenses
DABUR INDIA LIMITED
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Year
Current Current asset in liability crores in crores
Current ratios
2008
774
732
1.057
2009
1106
920
1.181
2010
951
805
1.202
2011
1853
1458
1.270
2.Quick ratio Quick ratio
= quick asset current liabilities
Where, Quick assets = Current assets – Inventory Year
Quick asset in crores
Current
2008 2009 2010 2011
570.96 547.4 533.6 918.54
crores 732 805 920 1458
liability
in Quick ratio .78 .68 .58 .63
A quick ratio of 1:1 is considered to be satisfied. Here, in this company it is not possible to meet the current liabilities with the quick assets. The values indicate that the inventories of the firm do not sell. None of the years indicate a satisfactory quick ratio except 2008 which shows a ratio of 0.78:1.The liquidity position of the company is not satisfactory. Debt equity ratio= Debt / Equity
DABUR INDIA LIMITED
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Year
Debt
equity
Debt-equity ratio
2008
342.41
396.89
.23
2009
312
412.77
.14
2010
204
262.06
.19
2011
284
332.26
03
.
B) Leverage ratio: These are calculated to judge the long term financial position of the firm. These ratios indicate the extent to which the firm has relation on debt in financing assets. These help measure the financial risk and the firm’s ability of using debt to shareholders advantage. These are also calculated from profit and loss items. A company can finance its assets either with equity or debt. 1. Debt ratio: The debt ratio shows the amount the lenders have financed in the company. It measures the long term solvency of the firm the amount of the funded debt in the capital structure. It is given by: Debt ratio =
Total Debt Capital employed
Long term debt = Secured loans + Unsecured loans and Capital employed =Share capital + Reserve and Surplus+ Secured loan + Unsecured loan Debt –Equity Ratio: The debt-equity ratio is an important tool of finance analysis to appraise the financial structure of the firm. It has important from the viewpoint of creditors, owner and the firm itself. T h e r a t i o r e f l e c t s t h e relative contribution of creditors and owners
DABUR INDIA LIMITED
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o f t h e b u s i n e s s i n i t s financing.A high ratio shows a large share of financing by the creditors of the firm; a low ratioimplies a small claim of creditors. The debtequity ratio indicates the margin of safety to the creditors. The shareholders of the firm would, however stand to gain in two ways: (i) with a limited s t a k e , t h e y w o u l d b e able to retain control of the firm and (ii) the return to them would be magnified. With a larger proportion of debt in the financial structure, the earnings available to the owner would increase more than proportionately with the increase in the operating profits of the firm.
Debt equity ratio =
Total Debt Net worth
2. Capital Employed to Net Worth: 3. Proprietary ratio: Proprietary ratio= Share holders equity Total assets
C) Activity / turnover ratios These ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. They are so called because they indicate the speed with which assets are being converted or turned over into sales.A proper balance indicate that the assets are being managed well. It also ties into the ability of a company to meet both its short term and long term obligations. It measures how well assets are used. The greater the turnover, the more effectively the company is at producing a benefit from its investment in assets. a) Inventory turnover ratio is regarded as a test of efficiency and indicates efficiency of the firm in producing and selling its product. This is given by:
Inventory turnover ratio = Cost of the goods sold Average Inventory DABUR INDIA LIMITED
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Average Inventory= opening +closing stock of finished goods 2
Days of inventory holding= 365/inventory turnover ratio Inventory turnover ratio = Sales / Avg. stock Year 2008 2009 2010 2011
Sales 1163.19 1370.85 1147.97 1268.71
Avg. stock 148.89 168.59 145.07 118.77
Ratio 7.81 7.30 7.91 10.68
b) Debtors turnover ratio indicates how many times in the period credit sales have been credited and collected on.
Debtors turnover ratio =
Credit sales Average Debtors
Collection period = 365/ Debtors turnover ratio
c) Current asset turnover ratio indicates the extent that the investment in current assets result in sales.
Current Asset turnover ratio = DABUR INDIA LIMITED
Sales
Page 12
Current asset
d) Fixed asset turnover ratio indicates the ability of the company’s management to put the fixed assets to work to generate sales.
Fixed asset turnover ratio =
Sales/ fixed asset
Year
Inventory
Debtors turnover Investment
Asset
2008 2009 2010 2011
turnover ratio 11.31 10.94 12.52 11.11
ratio 23.62 22.63 25.94 39.70
ratio 4.31 4.84 4.67 4.50
turnover ratio 11.31 10.94 12.52 13.44
turnover
Cost ratios
Cost ratios are computed to indicate the trend of the cost elements. It is calculated by dividing any item of expenditures from trading and profit and loss by net sales of the company. Different cost ratios include:
a) Material cost to sales ratio
= Materials consumed x 100
Net Sales DABUR INDIA LIMITED
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It measures the material usage efficiency. If ratio is computed it would indicate the material cost part in sales of the company.
b) Labour cost to sales ratio
= Labour cost x 100
Net sales
This ratio show the trend in labour efficiency if it is computed over a period of time from this ratio the extent of the labour cost in the total cost could be assessed.
c) Factory Overheads to sales ratio = Factory overhead x 100
Net sales
This ratio show the extent of factory overhead in sales and its total efficiency. Factory overhead is directly related to production and hence due weightage should be given to the quantity produced.
istration overhead seldom forms a major cost element. Ratio computed over a period of time show the efficiency level and the extent of its dominance in cost elements.
GROSS PROFIT RATIO: DABUR INDIA LIMITED
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Change in the gross margin can be brought about by changes in any of these factors. The gross margin represents the limit beyond which fall in sales prices are outside the tolerance limit. Further, the gross profit ratio can also be used to determining the extent of loss caused by theft, spoilage, damage, and so on in the case of those firms which follow the policy of fixed gross profit ratio in pricing their products.A v e r y h i g h a n d r i s i n g g r o s s m a r g i n m a y b e t h e r e s u l t o f u n s a t i s f a c t o r y b a s i s o f evaluation of stock, that is, overvalued of closing stock and undervalued of opening stock. But a low gross margin is also a danger signal, warranting a careful, detailed analysis of the factors responsible For it.
Gross profit ratio = Gross profit / sales *100
Year
Gross profit
Sales
Ratio
2008
560.05
1163.19
48.1%
2009
682.01
1370.85
49.7%
2010
553.91
1147.97
48.2%
2011
653.39
1268.71
51.5%
EARNING PER SHARE:
Earning per share = Profit after tax / Number of shares
Year
DABUR INDIA LIMITED
Profit after Tax
Page 15
Number of shares
EPS
2008
64.4
285366429
2.25
2009
93.03
285662514
3.25
2010
101.20
285987220
3.53
2011
148.01
286336927
5.16
Every business needs adequate liquid resources in order to maintain day to day cash flows. It needs enough cash to by wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate working capital; is not just important in the short term .Sufficient liquidity must be maintained in order to ensure the survival of business in the long term as well. Even a profitable business may fail if it does not have adequate cash flows to meet its liabilities as they fall a due. Therefore when business make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building etc, but must also take of the additional current assets that are usually involved with any expansion of activity .Increase production tends to engender a need to hold additional stocks of raw material & work in progress.Increased sales usually mean that the level of debtor will increase. A general increase in the firm’s scales of operation tends to imply a need for greater level of cash.
. D) Profitability ratios These are calculated to measure the operating efficiency of the firm.
Profitability ratios related to sales: DABUR INDIA LIMITED
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a) Gross profit margin: The gross profit indicates the efficiency by which the management produces each unit of product. This given by: Gross profit margin = Sales – cost of the goods sold Sales b) Net profit margin is the ratio of net profit to sales, and indicates how much of each rupee of sales is left over after all expenses. It indicates managements efficiency in manufacturing, istering and selling the products. Its an overall measure of the firm’s ability to turn each rupee sales into net profit. If net margin is inadequate, the firm will fail to achieve satisfactory return on shareholder’s funds.
Net profit ratio = Net profit x 100 Sales
Profitability ratios in relation to the investment:
c) Return on Equity (ROE) is calculated to see the profitability of owners investment. It indicates how well the firm has used the resources of the owners.
ROE =
Net profit x 100 Equity
Where , Equity = Share capital + Reserves & surplus
DABUR INDIA LIMITED
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d) Return on Investment (ROI) analysis is one of several commonly used approaches for evaluating the financial consequences of business investments, decisions, or actions. ROI analysis compares the magnitude and timing of investment gains directly with the magnitude and timing of investment costs. A high ROI means that investment gains compare favorably to investment costs.
ROI =
Net profit
x 100
Capital employed
Where , Capital employed = Total liabilities
e) Earning per share (EPS) indicate whether or not the firm’s earnings power on per share basis has changed over that period.
EPS =
Profit after tax
Number of common shares outstanding
f) Dividend per share(DPS) indicates whether or not to declare dividend after making profit.
DABUR INDIA LIMITED
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2008-09 Gross profit ratio 11.25 Net profit 8.82 Return on capital 29.50
09-10 14.35 11.67 49.79
10-11 15.64 13.80 49.47
employed Return on net worth Debts turnover ratio Fixed asset turnover
48.79 27.78 4.33
82.47 50.83 6.88
29.78 14.46 4.06
SWOT Analysis of Dabur India
SWOT stands for Strengths, Weaknesses, Opportunities and Threats, and is an important tool often used to highlight where a business or organisation is, and where it could be in the future. It looks at internal factors, the strengths and weaknesses of a business, and external factors, the opportunities and threats facing the business. The process can give you on overview of where the business, and the environment it operates in, is strategically. This is an important, yet to simple to understand, tool used by many students, businesses and organisations for analysis . The SWOT analysis will give you a clear picture of the business environment Dabur india is operating in at the present time . Strengths :The strengths of a business or organisation are positive elements, something they do well and is under their control . The strengths of a company or group and value to it, and can be what gives itthe edge in some areas over the competitors.
STRENGTH •
Having alliances with other strong and popular businesses is a major plus point for Dabur india as it helps bring in new customers and make business more effective.
DABUR INDIA LIMITED
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• •
Being a market leader, as Dabur india is, is key to their success as it boosts reputation, profit and market share. competitive pricing is a vital element of Dabur india’s overall success, as this keeps the minimum line with their rivals, if not above them.
•
Riding high in the niche market in FMCG industry has helped boost Dabur india and raise dreputation and turnover.
•
Keeping costs lower than their competitors and keeping the cost advantages helps Dabur india on some of the benefits to consumers.
•
The services/products offered by Dabur india are original, meaning many people will return to Dabur india to obtain them.
•
Dabur india’s marketing strategy has proved to be effective, helping to raise profiles and profits and standing out as a major strength.
•
Dabur india’s innovation keeps it a front-runner in FMCG as it is regularly turning out new patents/proprietary technology.
•
Experienced employees are key to the success of Dabur india helping to drive them forward with expertise and knowledge.
•
High quality machinery, staff, offices and equipment ensure the job is done to the utmost standard, and is a strength of Dabur india.
•
Dabur india has an extensive customer base, which is a major strength regarding sales and profit.
•
Dabur india’s reputation is strong and popular, meaning people view it with respect and believe in it.
•
Being financially strong helps Dabur India deal with any problems, ride any dip in profit sand out perform their rivals.
DABUR INDIA LIMITED
Page 20
•
A strong brand is an essential strength of Dabur India as it is recognized and respected.
•
Dabur India has a high percentage of the market share, meaning it is ahead of many competitors
•
Dabur India’s distribution chain can be listed as one of their strengths and links to success.
•
High quality products/services is a vital strength, helping to ensure customers return to Dabur India.
•
Dabur India’s international operations mean a wider customer base, a stronger brand and a bigger chunk of the global market.
•
Development and innovation are high at Dabur India with regard to their products/services, which is a sure strength in its overall performance.
•
Dabur India’s position in the market is high and strong – a major strength in this industry’s they are ahead of many rivals.
•
Having little competition, being one of very few companies providing thisservice/product is a major factor in Dabur India’s performance.
•
The online presence of Dabur India is strong, meaning it is ahead of many competitors.
•
The lucrative location of Dabur India adds to its strengths due to its accessibility (road, rail, air etc). Supplier relationships are strong at dabur india, which can only be seen as strength intheir overall performance.
WEAKNESS Weaknesses of a company or organization are things that need to be improved or perform better, which are under their control. DABUR INDIA LIMITED
Page 21
Weaknesses are also things that place you behind competitors, or stop you being able to meet objectives. •
Reputation is important, and a damaged one like Dabur India’s is a major weakness as consumers will not trust the firm enough to spend money with them.
•
A serious weakness for Dabur India is the fact their products/services are of low quality, meaning people will have better-quality substitutes.
•
Not reducing costs in the same way as their competitors means Dabur india is outlaying more of their profits. Having higher costs than competitors is a major weakness.
•
Dabur India’s R&D work is low and insignificant, which is a major weakness in FMCG as it is constantly creating new products.
•
The lack of staff experience is a major downfall for Dabur india as it could lead to mistakes or negligence.
•
Old and outdated technologies hold Dabur india back and limits success, as other firm sare making use of better and more reliable technologies.
•
Not having an effective marketing strategy seriously hampers the success of dabur india.
•
Over pricing, setting too high prices for dabur india products/services makes themuncompetitive, which is a major weakness.
•
The lack of business alliances is a major weakness for Dabur india, as they will struggle to get deals, favours and partnerships. Dabur india is in a poor financial position which makes it weaker than its competitors.
•
Dabur india’s lack of innovation limits its success, as there is no forward thinking.
DABUR INDIA LIMITED
Page 22
•
Good companies need loyal employees, but Dabur India has a poor relationship with staff which affects performance.
•
Dabur India does not function internationally, which has an effect on success, as they do not reach consumers in overseas markets.
•
Problems with stock are a weakness for Dabur India as they need to keep up with demand.
•
Online presence is vital for success these days, and lack of one is a limitation for Dabur India.
•
Dabur India underdeveloped distribution chain has a marked effect on performance as it affects the distribution of their products/services.
• •
The lack of original products/services is a major flaw in Dabur India’s future success, as it shows a blinkered outlook.
•
Dabur India's location is weakness for the firm, as it means they miss out on many opportunities.
•
Dabur India’s lack of patents proprietary technology puts it behind its rivals and is deemed as one of their weaknesses.
•
The weak brand name compromises success for Dabur India as it doesn't inspire people to buy their products/services.
•
A limited customer base is a major weakness for Dabur India as it means they have less people to sell or market to.
•
The weak market position of Dabur India is a limitation to their overall success, as they are well behind their rivals.
•
Dabur India’s limited product line is a major weakness.
DABUR INDIA LIMITED
Page 23
•
Dabur India’s weak supplier relationships also have an adverse effect on success, as it cut stability to negotiate.
•
Dabur India is behind its competitors with a low share of the market, which in turn leads to lower turnover.
Opportunities are external changes, trends or needs that could enhance the business or organization’s strategic position, or which could be of a benefit to them.
OPPORTUNITIES •
Dabur India could benefit from Governmental , in the form of grants, allowances, training etc.
•
Looking at export opportunities is a way for Dabur India to raise profits. Changes in technology could give Dabur India an opportunity to bolster future success.
•
Dabur India could benefit from expanding their online presence and making more money from online shoppers/internet s.
•
The changes in the way consumers spend and what they buy provides a big opportunity for Dabur India to explore.
•
Dabur India is in good financial position, which is an opportunity for them to explore in of investment in new projects.
•
Decrease in taxation gives an opportunity for Dabur India to reduce prices or increase profits.
•
The growth of the FMCG industry is an opportunity for Dabur India to grasp.
DABUR INDIA LIMITED
Page 24
•
New market opportunities could be a way to push Dabur India forward.
•
As the economic climate improves, so do the opportunities for Dabur India.
•
Dabur India has the opportunity to enter a niche market, gain leading position and therefore boost financial performance.
•
Reaching out into other markets is a possibility for Dabur India, and a big opportunity.
•
Grasping the opportunity to expand the customer base is something Dabur India can aim for, either geographically or through new products.
•
Takeover and merger opportunities could be explored for Dabur India and used to acquire new customers, new resources and enter new markets.
•
Expanding the product/service lines by Dabur India could help them raise sales and increase their product portfolio.
•
Reduction in interest rates could benefit Dabur India as business costs would come down.
•
Expanding into other markets could be a possibility for Dabur India.
•
Forming strategic alliances and t ventures is an opportunity for Dabur India to maximize profit and gain new business.
•
Dabur India has a number of highly skilled staff, which is an opportunity for them to explore as expertise of their staff can help Dabur India to bring the business forward.
•
Structural changes in the industry open other doors and opportunities for dabur india.
THREATS DABUR INDIA LIMITED
Page 25
Threats are factors which may restrict, damage or put areas of the business or organization at risk. They are factors which are outside of the company's control. Being aware of the threats and being able to prepare for them makes this section valuable when considering contingency plans and strategies. This section will outline main threats Dabur India is currently facing. •
Consumer lifestyle changes could lead to less of a demand for Dabur India products/services.
•
Tax increases placing additional financial burdens on Dabur India could be a threat.
•
The financial burden of increasing interest rates could be a threat to Dabur India.
•
Regulations requiring money to be spent or measures to be taken could put financial or other pressure on Dabur India.
•
New products/services from rival firms could lead to Dabur India's products/services being less in demand.
•
Changes in the way consumers shop and spend and other changing consumer patterns could be a threat to dabur India’s performance.
•
Being undercut by low-cost imports is a major threat for dabur India.
•
Not keeping up with changes in technology could be detrimental to the future of dabur india as they could slip behind their rivals.
•
Slow growth and decline of the fmcg market is a threat to dabur India.
•
Increased competition from overseas is another threat to dabur India as it could lead to lack of interest in their products/services.
DABUR INDIA LIMITED
Page 26
•
Extra competition and new competitors entering the market could unsteady dabur India and be a threat.
•
The actions of a competitor could be a major threat against dabur India, for instance, if they bring in new technology or increase their workforce to meet demand.
•
Price wars between competitors, price cuts and so on could damage profits for dabur India.
•
A slow economy or financial slowdown could have a major impact on dabur India business and profits.
•
A decline in demand for dabur India products, with no likelihood of resurgence could pose a threat. The rise and/or fall of the foreign exchange rate could threaten dabur India with regard to importing and exporting.
•
Rising costs could be a major downfall for dabur India as it would eat into profit.
•
Dabur India could be threatened by the growing power customers have to set the price of their products/services.
•
Structural changes in the industry could be a threat for dabur india Dabur India could be threatened by the growing power their suppliers have to set their prices.
•
•
Substitute products available on the market present a major threat to dabur india
2011
DABUR INDIA LIMITED
2010
2009
2008
Page 27
2007
Profitability ratio Operating Profit Margin(%)
19.06
19.17
18.33
18.6
17.45
Profit Before Interest And Tax Margin(%)
17.76
17.97
17.11
17.29
16.16
Gross Profit Margin(%)
17.91
18.06
17.19
17.37
17.49
Cash Profit Margin(%)
15.58
15.88
15.97
16.16
15.67
Adjusted Cash Margin(%)
15.58
15.88
15.97
16.16
15.51
Net Profit Margin(%)
14.27
15.03
15.44
15.06
14.41
Adjusted Net Profit Margin(%)
14.27
15.03
15.44
15.06
13.88
Return On Capital Employed(%)
44.16
61.62
47.98
67.51
66.07
Return On Net Worth(%)
46.29
58.04
51.2
61.58
62.52
Adjusted Return on Net Worth(%)
45.21
56.29
48.65
59.99
63.32
Return on Assets Excluding Revaluations
5.85
8.6
8.43
5.95
4.44
Return on Assets Including Revaluations
5.85
8.6
8.43
5.95
4.44
53.79
68.96
55.29
68.93
68.63
Return on Long Term Funds(%)
Liquidity And Solvency Ratios
DABUR INDIA LIMITED
Page 28
Current Ratio
0.99
0.93
1.19
0.91
0.97
Quick Ratio
0.78
0.68
0.99
0.58
0.63
Debt Equity Ratio
0.23
0.14
0.19
0.03
0.05
Long Term Debt Equity Ratio
0.01
0.02
0.03
0.01
0.01
Debt Coverage Ratios Interest Cover
56.06
52.35
38.34
46.79
140.69
Total Debt to Owners Fund
0.23
0.14
0.19
0.03
0.05
Financial Charges Coverage Ratio
50.47
42.53
31.26
36.56
69.48
Financial Charges Coverage Ratio Post Tax
41.66
36.46
28.99
32.87
64.33
Management Efficiency Ratios Inventory Turnover Ratio
8.65
11.31
10.94
12.52
11.11
Debtors Turnover Ratio
19.67
23.62
22.63
25.94
39.7
Investments Turnover Ratio
8.65
11.31
10.94
12.52
13.44
Fixed Assets Turnover Ratio
4.39
4.31
4.84
4.67
8.51
Total Assets Turnover Ratio
2.46
3.44
2.81
3.98
4.3
DABUR INDIA LIMITED
Page 29
Asset Turnover Ratio
4.39
4.31
4.84
4.67
4.5
Average Raw Material Holding
63.26
52.96
45.18
45.68
40.91
Average Finished Goods Held
29.32
22.08
21.28
20.13
22.21
Number of Days In Working Capital
26.7
3.76
41.32
-5.8
3.82
53.15
48.61
52.8
49.05
45.86
0.93
1.22
1.06
0.97
1.22
14.89
16.55
14.89
16.12
23.11
4.09
4.31
4.56
4.49
3.96
Dividend Payout Ratio Net Profit
49.42
46.86
47.41
47.86
55.24
Dividend Payout Ratio Cash Profit
44.32
43.13
43.74
43.54
49.63
49.4
51.67
50.11
50.87
42.64
Profit & Loss Ratios
Material Cost Composition
Imported Composition of Raw Materials Consumed
Selling Distribution Cost Composition
Expenses as Composition of Total Sales Cash Flow Indicator Ratios
Earning Retention Ratio
DABUR INDIA LIMITED
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Cash Earning Retention Ratio
54.74
55.64
54.16
55.41
48.66
0.49
0.23
0.36
0.05
0.07
Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Earnings Per Share
2.71
4.99
4.32
3.67
2.92
Book Value
6.33
8.64
8.53
6.11
4.67
AdjustedCas h Flow Times
(Rs crore)
Cash flow and fund flow
In financial ing, a cash flow statement, also known as statement of cash flows or funds flow statement is a financial statement that shows how changes in balance sheet s and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.[As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International ing Standard 7 (IAS 7), is the International ing Standard that deals with cash flow statements. People and groups interested in cash flow statements include:
ing personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses
Potential lenders or creditors, who want a clear picture of a company's ability to repay
Potential investors, who need to judge whether the company is financially sound
Potential employees or contractors, who need to know whether the company will be able to afford compensation Shareholders of the business.
Profit before tax
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Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
596.26
527.03
425.00
365.18
284.22
Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
338.61
481.49
323.57
313.29
234.43
-222.22
-267.54
-238.38
-179.77
-60.57
-87.89
-201.88
-9.77
-119.30
-168.06
Net inc/dec in cash and equivalent
28.50
12.07
75.42
14.22
5.79
Cash and equivalent begin of year
163.91
151.84
68.26
54.04
44.45
Cash and equivalent end of year
192.41
163.91
143.68
68.26
50.25
Net cash flow-operating activity Net cash used in investing activity Net cash used in fin. activity
WORKING CAPITAL ANALYSIS Working capital is the difference between the current assets and the current liabilities.net working capital may be positive or negative. When the current asset exceed the current liabilities there will be positive net working capital. A negative value occurs when the current liabilities exceed the current asset and liability.
Year
WORKING CAPITAL
CURRENT RATIO
2008
42
1.051
2009
146
1.181
2010
186
1.202
2011
395
1.270
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As working capital increases current ratio also increases.
III . BREAK- EVEN ANALYSIS This is a specific way of presenting the relationship between the cost, volume and profit. As an ultimate objective it helps management to seek the most profitable combination of cost and volume. The break even indicates the level of the sales at which the cost and revenues in equilibrium. The equilibrium point is called the breakeven point. It is a no profit no loss point. Total variable and fixed costs are compared with sales revenue in order to determine the level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the "break-even point"). Dabur India expects its loss-making retail business to break even in the next fiscal as it aims to cut costs through a revenue-sharing model under which it would give a percentage of its revenues to landowners, instead of rent. “Increasingly we are going for a revenue-sharing model in retail. So, instead of giving rent, we give a percentage of our revenues,” chief executive officer Sunil Duggal said. That model ensures faster break-even and is less risky, he said, adding some landlords have already begun to accept the new model. “Even this year the loss would be less than half of last year,” Duggal said. The retail arm had posted a loss of around Rs 24 crore in FY09. Dabur operates its retail business through its subsidiary H&B Stores Ltd and and operates a chain of beauty, health & wellness retail outlets under the brand name ‘’newu’’. The personal care and food products maker currently has 12 retail outlets across India. Any further expansion plans in retail would depend on the sucess of the revenue-sharing model, he said. Dabur is not keen on a price hike though it is concerned about rising material costs.
Break even point can be calculated by the following formula: BEP = Fixed cost P/V ratio Where P/V ratio
= (Contribution / Sales) x 100
Contribution
= Sales – Variable cost
Margin of safety
= Actual sales – Break even sales
Assumption of Break-Even Analysis; DABUR INDIA LIMITED
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1. All cost can be classified into fixed and variable costs. 2. Selling price does not change with the sales volume. 3. There is only one product or one constant sales mix. 4. All units produced are sold
The company had been confronting with huge accumulated losses so the break even point is hard to find. Due to the high cost of the material, firm was not able to meet the cost for the sales made so it was not able to make a profit out of it. And, thus to the firm more turnover will only incur more and more loss. The company is making a huge loss so it is better to abandon it. Dabur Foods Ltd, a fully owned subsidiary of Dabur India Ltd, will break even by the end of the current financial year. The company had reported a loss of Rs 8.3 crore on a turnover of Rs 37.12 crore in 2000-01. The company has projected to wipe out its accumulated losses in another three years' time.
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IV. INVESTMENT DECISION ANALYSIS The investment decisions of a firm can also be called as the capital budgeting, or capital expenditure decisions. It is a decision defined as the firm’s decision to invest its current funds most efficiently in the long-term assets in anticipation of an expected flow of benefits over a series of years. This is the most important decision to be made by the management in planning as it involves a high risk of the uncertainty in gaining the profit in the future. Ones made it cannot be reversed. The company, which signed an agreement with the Board of Investment of Sri Lanka for this venture, said in a statement that the investment marks its entry into the island nation. Dabur has set up Dabur Lanka Pvt Ltd, to be incorporated under its wholly-owned unit Dabur International, which handles overseas operations. "The demand for fruit-based juices and beverages under the Real brand has been reporting strong growth month-on-month. Dabur's food business had reported an over 28 percent growth in 2010/11 despite supply constraints," Chief Executive Sunil Duggal said. "As continued high growth is expected in the future too, we are setting up this new facility to augment our production capacity for fruit-based beverages and meet the growing demand." Duggal added. The new plant, which will be set up at Gampaha, north of Colombo, will have a monthly capacity of 280,000 cases and will be commissioned in Aug-Sept 2012. Dabur has manufacturing plants in Nepal, Bangladesh, Dubai, Nigeria, Egypt and Turkey among others. About 22 per cent of Dabur's sales come from international markets, including African nations, Nepal and Bangladesh. "Building manufacturing facility in Sri Lanka was an important strategic decision for Dabur as manufacturing presence here gives us a competitive edge that we intend to utilize in full," Duggal said. shares of the company were up 0.94 percent at 102.55 rupees in a firm Mumbai market. ($1=49.195 rupees)
Net Present Value (NPV) method is an economic method of evaluating the investment Proposals. It recognizes the time value of money. NPV = Present value of cash inflow – Present value of cash outflow Table 1.9 DABUR INDIA LIMITED
Page 35
Profitability index (PI)= present value of the cash inflow / outflow Calculation of the weighted average:
Cost of Debt
= Interest and financial charges x 100
Long term debts
In the table above the weights are given and the weighted average is calculated . The sum of the Debt and equity weighted average is taken and the this is found to be (3.07+.051= 3.12%). The PV values at 3% are taken for the five years and the inflow is discounted with the respective values\ as shown in the table Thus, NPV= =
-513199060 - 996777770.8 -609976831.7
Here, the NPV is negative so it is not feasible to invest in the project. PI= PV of cash inflow = -0.529 Outflow
Average rate of return= Average profit after tax = - 0.533 Average b/v of investment
CONCLUSION AND RECOMMENDATION DABUR INDIA LIMITED
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The financial statements of the firm for the five consecutive years(2010-2011) were analyzed and various ratios and analysis were done.
•
Through the ratio analysis of seven ired companies in the same sector. The various positive and negative results came out, on the basis of these results I would like to recommend that-
•
The company should try to increase the duration of the average collection period to compete with its competitors, by offering the customer high cost in credit sales.
•
The company should try to maintain its net worth for having satisfactory fund for equity share holders.
•
The company should give more emphasis to sufficient utilization of the resources and funds.
•
The company should improve the return on capital employed, as a source of long term fund.
The company should reduce its variable cost to p r o f i t m a r g i n which is very low relatively other FMCG
increase
gross
FINDINGS •
On the basis of data and available information. Certain findings arrived that relates the Ratio Analysis of the company. • It is observe that the Dabur India Ltd. has good profit margin and company’s l i q u i d i t y i s a l s o g o o d . I t h a s i m p o r t a n t f r o m t h e v i e w p o i n t o f c r e d i t o r s a n d shareholders’ that company have sufficient fund to pay them.
•
In the comparison of profitability ratio in Dabur India Ltd. the gross profit ratio14.35% and net profit ratio 11.67% both are increases in the year 2010-2011 in compare to last two year.
•
The current ratio 1.47% is also increase in the year 2010-2011 in compare to last two year. It shows that current assets increase over current liabilities.
DABUR INDIA LIMITED
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•
The debt equity ratio 0.45% is also increase in the year 2010-20011 in compare to last two year. It shows that a large share of financing by c r e d i t o r s i n t h e company, which is positive sign for the company.
•
The return on capital employed 49.47% is having little bit of decrease in 2005-2006 in compare to last year. But then also its better than some other FMCG companies. It shows that Dabur India Ltd. have sufficient sources of the long term funds.
•
The fixed assets turnover ratio 6.88% has increases in 2010-2011 compare to last two years. It shows the efficiency of Dabur India Ltd. in utilizing the fixed assets of the company, comparing with the previous period. It also shows that company has increases its investment in fixed assets.
•
The debtors’ turnover ratio 50.83% has increases in 2010-2011 in compare to last two years, which shows that Dabur India Ltd. is managing its credit very well. •
The average collection period is decreases to 10.16% in compare to last two years. This low average collection period shows a low cost in extending credit to
LIMITATIONS Although it has been my endeavor to take all necessary precautions to ensure that the i n f o r m a t i o n g a t h e r e d i s a u t h e n t i c a n d m a x i m u m f a c t s a r e p r e s e n t e d b u t I f a c e d c e r t a i n constraints while doing so. The constraints and limitations faced are as mentioned below: 1. Time: The nature of the report required detailed and meticulous information gathering. In this sense time was a limiting factor and a major constraint to accomplish the given task. Also sometimes the information was not available on time. This caused a lot of pilferage of time unnecessary of duplication of effort.
•
•
2.Human error: The provided by the company executives, consumers and others •
approached has been assumed to be correct. But there might have been wrong and biased facts given. The opinion of few cannot be generalized in any manner.
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•
•
3.Non cooperation: While by and large the people approached were helpful some people were non-cooperative. Also a lot of information was withheld due to its sensitive nature. 4.Calculation error: The report required calculation of figures and at last have to analysis them also, so mistake can be arises during calculations.
REFERENCES •
Financial Management BY Pandey , Vikas Publishing House Pvt. Ltd, New Delhi.
•
Financial Management theory and practice by Prasanna Chandra
•
www.dabur.com
•
www.google.com
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