A STUDY ON WORKING CAPITAL MANAGEMENT OF

HINDUSTAN UNILEVER LIMITED

Project Work Report submitted to Dayananda Sagar

University in partial fulfillment of the requirements
for the award of

BACHELOR OF COMMERCE

Submitted by

ADARSH K A
USN: CMS19MA0003

UNDER THE GUIDANCE AND SUPERVISION OF

DR. RAJA NARAYANAN

SCHOOL OF COMMERCE AND MANAGEMENT STUDIES

DAYANANDA SAGAR UNIVERSITY
BENGALURU

1
 DECLARATION

I, ADARSH K A (USN: CMS19MA0003) hereby declare that the project works

entitled
Limited submitted to Dayananda Sagar University in partial fulfilment of the
requirements for the award of B.Com, is a record of independent project works
work carried out by me under the supervision and guidance of Dr. Raja
Narayanan, Professor, School of Commerce and Management Studies,
Dayananda Sagar University, Bengaluru. This work has not formed the basis for
the award of any Degree and has not been submitted previously to any other
College/University.

Place: Bengaluru
Date: 14/01/2022

ADARSH K A

2
Dr. RAJA NARAYANAN
Associate Professor, School of Commerce and Management Studies

Dayananda Sagar University

Bengaluru 560 078

CERTIFICATE

I certify that this project works entitled A Study on Working Capital

Management of Hindustan Unilever Limited submitted to Dayananda
Sagar University in partial fulfillment of the requirements for the award of
B.Com, is a record of independent project works work carried out by
ADARSH K A under my supervision and guidance. This work has not
formed the basis for the award of any Degree and has not been submitted
previously to any other College/University.

Place: Bengaluru
Date: 14/01/2022

3
 DAYANANDA SAGAR UNIVERSITY
SCHOOL OF COMMERCE AND MANAGEMENT
Certificate of Originality
(Plagiarism)

Name of the Student: ADARSH K A

Registration Number: CMS19MA0003
Title of Dissertation/Project:

Name of Guide: Dr. RAJA NARAYANAN

Similar Content (%) Identified: 15% (Acceptable maximum limit of 20%)

The dissertation report has been checked using PLAGIARISM CHECKER X anti- plagiarism
software (Attached first page of originally report as ANNEXURE) and found within limits as
per plagiarism Policy and instructions issued by the UNIVERSITY.
We have verified the contents of the dissertation report, as summarized above and certified that
the statements made above are true to the best of our knowledge and belief.

Signature of the Student Signature of the Guide Signature of the Dean

4
 ACKNOWLEDGMENT

I am very grateful to take this opportunity to express gratitude to those

who have been helpful to me in completing this project report.

I would be failing in my duty if I do not express my deep sense of gratitude

to Dr. Raja Narayanan, Professor, School of Commerce and
Management Studies, Dayananda Sagar University, Bangalore, without
his guidance it would not have been possible for me to complete this
project.

I would like to thank my class mentor Dr.Tejaswini, Assistant Professor,

who helped me throughout this project and also contributed directly or
indirectly in completing my project.

Lastly, I would like to thank my friends who encouraged me to do this

project.

5
 EXECUTIVE SUMMARY

The purpose of this study, titled "A Study on Working Capital Management of Hindustan
Unilever Limited" was to look into working capital management, profitability, and liquidity
over the last five years, from financial year 2016-17 to 2020-21, using Ratio analysis and
Statements of Changes in Working Capital. Hindustan Unilever Limited's working capital
management was the subject of this investigation.

Effective working capital management can help a company keep operations running smoothly
while also increasing earnings and profitability. Working capital management includes
inventory management, as well as accounts receivables and payables management. The basic
goals of working capital management are to maintain the working capital operating cycle and
ensure that it runs smoothly, as well as to reduce the cost of capital spent on working capital
and to maximise the return on current asset investments.

This study used a descriptive research approach to describe recent events in the organization,
as well as an analytical research method to examine the findings utilizing research instruments.
The final results and conclusion is find on the 5 years financial statements data that extracted
from the annual report of the Hindustan Unilever Limited from their official webpage. Data on
also taken as a
secondary data.

6
 TABLE OF CONTENTS

CONTENTS Page
No.
LIST OF TABLES 8

LIST OF GRAPHS 8

Chapter I INTRODUCTION 10-21

1.1 Introduction to Study 10
1.1.1 Working Capital Management 10
1.2 Importance of Topic from Micro and Macro Perspective 13
1.3 Industry Profile 13
1.3.1 Introduction to FMCG industry 13
1.3.2 Market size 14
1.3.3 Competitors of the industry 15
1.4 Company Profile 16
1.4.1 Introduction to Company 16
1.4.2 Mission and Vision Statement 18
1.4.3 Board Of Directors 18
1.4.4 Objectives of the Company 18
1.4.5 Product Profile 19
1.4.6 SWOT Analysis 20

Chapter II REVIEW OF LITERATURE 22 28

2.1 Review of Literature 22
2.2 Research Gap 28

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Chapter III 29 34
RESEARCH METHODOLOGY
3.1 Research Design 29
3.2 Objectives of Study 29
3.3 Need for the Study 29
3.4 Research Questions 30
3.5 Scope of the Study 30
3.6 Data Collection 30
3.7 Period of the Study 30
3.8 Research Techniques and Tools 31
3.8.1 Ratio Analysis 31
3.8.2 Statement of changes in Working capital 32
3.9 Limitations of the study 33

Chapter IV DATA ANALYSIS 34-60

4.1 Ratio Analysis 34
4.1.1 Current Ratio 34
4.1.2 Acid Test Ratio 37
4.1.3 Inventory Turnover Ratio 41
4.1.4 Receivables Turnover Ratio 44
4.1.5 Working Capital Turnover Ratio 47
4.1.6 Net Profit Ratio 50
4.1.7 Combined ratio 53
4.2 Statement of changes in Working capital 54

Chapter V FINDINGS,CONCLUSIONS 61-63

AND
RECOMMENDATIONS
Annexure 64-69
Bibliography 70-72

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 LIST OF TABLES

Sl. Table Title of Table Page

No. No. No.
1 4.1 Current Ratio table 35
2 4.2 Current assets, inventory & current liabilities table 38
3 4.3 Acid test ratio table 38
4 4.4 Net sales & Average receivables table 41
5 4.5 Receivables turnover ratio table 41
6 4.6 Net sales & Average inventory table 44
7 4.7 Inventory turnover ratio table 44
8 4.8 Net sales & Average working capital table 47
9 4.9 Working capital turnover ratio table 47
10 4.10 Net sales & Profit after tax table 50
11 4.11 Net profit ratio table 50
12 4.12 Combined ratio analysis table 53
13 4.13 Statement of changes in working capital for the year 2017 55
14 4.14 Statement of changes in working capital for the year 2018 56
15 4.15 Statement of changes in working capital for the year 2019 57
16 4.16 Statement of changes in working capital for the year 2020 58
17 4.17 Statement of changes in working capital for the year 2021 59
LIST OF GRAPHS

Sl. Graph Title of graph Page

No. No. No.
1 4.1 Current assets vs. Current liabilities graph 35
2 4.2 Current ratio graph 36
3 4.3 Acid test ratio graph 39
4 4.4 Receivables turnover ratio graph 42
5 4.5 Inventory turnover ratio graph 45
6 4.6 Working capital turnover ratio graph 48
7 4.7 Net profit ratio graph 51

9
 CHAPTER - I: INTRODUCTION

1.1 INTRODUCTION TO THE STUDY

As a part of curriculum, each student studying BCOM has to undertake a final year project on
any finance related topics. According to that I have been taken the project work on
on working capital management of Hindustan Unilever Limited

The term working capital management refers to decisions made about short term assets and
liabilities. Working capital is one of the major term in finance and it is crucial in nature for
corporates. Every company needs to be aware of their working capital and it is very necessary
to manage in well manner on the purpose of moving day to day working of the company. The

accounts receivable and inventory.

The aim of working capital management is to minimize both the operating cycle and the cash
cycle by decreasing the number of days inventory on hand and the receivables collection period
while maximizing the accounts payable payment cycle.

Working capital used in Hindustan Unilever Limited(HUL), for the following purpose; direct
material, work in progress, finished goods, inventories, debtors and day to day maintenance

working capital terminology, cash management, marketable securities management, accounts

receivable management and inventory management have been discussed relating to Hindustan
Unilever Limited.

Analyzing part of this study has been carried out on the basis of some financial ratios such as
Working Capital Turnover Ratio, Acid- test Ratio (Quick Ratio), Current Ratio, Inventory
Turnover Ratio, Debt Turnover Ratio, etc.

1.1.1 WORKING CAPITAL MANAGEMENT

Working capital management is a series of activities carried out by a firm to ensure that it has
enough resources to cover day-to-day running expenses while also retaining resources invested
productively. Working capital management classified into 4 major parts. Those are as follows;

10
1) Cash Management

Cash balances are maintained by a firm for;

Operations - To pay ordinary expenses.

Compensating balances - Represents a minimum checking account balance required by
the bank to compensate the bank for bank services, fee waivers, & loans.
Trade discounts - Quick payment of bills for early payment discounts.
Speculative balances - Funds to take advantage of special business opportunities.
Precautionary balances - Amounts that may be needed in emergency situations.

2) Marketable Securities Management

To maximize earnings on free cash, a firm may utilize various investments. The most important
considerations with respect to these investments are liquidity (marketability) AND risk
(safety). Other considerations include minimum investment required (e.g., high-yield CDs may
require larger investment), maturity (time period for commitment of funds), yield (more the
better)

Available investments

Treasury bills - Short term obligations backed by US with original maturity under 1
year that can be bought and sold easily from issuance to maturity date These are in
zero-coupon form and pay no formal interest, so they trade at a discount to maturity
value
Treasury notes - Obligations with original maturity between 1 to 10 years. Formal
interest payments are made semi-annually.
Treasury bonds - Same as notes but with original maturity over 10 years.
Treasury Inflation-Protected Securities (TIPS) - Treasury notes and bonds that pay a
fixed rate of interest but with principal adjusted semi-annually for inflation.
Federal agency securities - Offerings that may or may not be backed by the full faith
and credit of US and do not trade as actively as Treasuries, but pay slightly higher rates.
Certificates of deposit (CD) - Time deposits at banks with limited government
insurance. Interest yields are higher on
are not as liquid or as safe although they are insured by the FDIC.
Commercial paper - Promissory notes issued by corporations with original maturity of
up to 9 months.
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 - A draft drawn on a bank but payable at a specific future date,
usually 30-90 days after being drawn.
Money market fund - Shares in a mutual fund that invests in instruments with an
average maturity date under 60 days, and which generally maintains a stable value for
investors.
Money market accounts Like savings accounts where account-holders deposit idle
funds which are invested in higher-yield bank CDs, commercial paper, etc.
Short-term bond fund - Shares in a mutual fund that invests in instruments with an
average life over 90 days but under 5 years, generating higher returns than a money
market fund but with some fluctuation in the principal value of the fund.
Equity and debt securities - Individual stocks and bonds with substantially higher
potential returns but also greater risk.

3) Receivable Management

Receivables management involves systems for deciding whether or not to grant credit and for
monitoring the receivables. The credit policy consists of four variables:

Credit period - The time allowed for buyers to make payment (typically 30 days).
Discounts - Percentage reduction and days allowed for early payment (such as 2% for
payment in 10 days).
Credit criteria - Financial strength requirements for customer to be granted credit;
a. Before granting credit to a customer, must determine level of credit risk based
on prior payment record, financial position, financial stability, etc.
b. Credit info is also available from sources like Dun & Bradstreet Information
Services.
Collection policy - Methods used to collect slow-paying accounts.

4) Inventory Management

When it comes to inventory purchasing decisions, budgeting include deciding when to place
orders or (start production) to replace inventory, as well as how much to buy (or produce).

12
Major goals are;

Maintain adequate inventory levels.

Minimize inventory costs (including carrying costs, ordering costs, receiving costs,
costs of running out of inventory).

1.2 IMPORTANCE OF TOPIC FROM MACRO AND MICRO PERSPECTIVE

Working capital management is much important in all perspective. A good management

of working capital is very needful nancial health and operational
performance as a business. A good business management is the ability to utilize working capital
Working capital is the difference between a company's current assets and current liabilities or
obligations; it is used in the day-to-day operations of the company. Working capital is a
measure of a company's operational efficiency and short-term financial stability. The working
capital ratio, which is calculated by dividing current assets by current liabilities, shows if a
company has enough cash flow to meet short-term commitments and expenses. Working
capital is a daily requirement for businesses, as they require a consistent quantity of cash to
make normal payments, cover unforeseen costs, and purchase basic ingredients for
manufacturing items.

Effective working capital management can help a company keep operations running smoothly
while also increasing earnings and profitability. Working capital management includes
inventory management, as well as accounts receivables and payables management. The basic
goals of working capital management are to maintain the working capital operating cycle and
ensure that it runs smoothly, as well as to reduce the cost of capital spent on working capital
and to maximise the return on current asset investments.

1.3 INDUSTRY PROFILE

1.3.1 INTRODUCTION TO FMCG INDUSRTY

Hindustan Unilever Limited comes under Fast Moving Consumer Goods (FMCG) industry.
The fast-moving consumer goods (FMCG) industry is India's fourth-largest, with household
and personal care products accounting for half of all FMCG sales. The sector's main growth
drivers have been increased awareness, easier access, and changing lifestyles. The urban
segment (which accounts for about 55 percent of the total income generated by the FMCG
sector in India) is the most important contributor to the overall revenue earned by the sector.

13
However, in recent years, rural India's FMCG sector has developed at a quicker rate than urban
India's. Semi-urban and rural areas are rapidly expanding, with FMCG products accounting for
half of all rural spending.

1.3.2 MARKET SIZE

The Indian retail sector is predicted to rise to US$ 1.1 trillion by 2020, up from US$ 840 billion
in 2017, with contemporary trade expected to increase at 20-25 percent per year, boosting
FMCG income. From US$ 110 billion in 2020 to US$ 220 billion in 2025, India's FMCG
industry is predicted to grow at a CAGR of 14.9 percent. The Indian FMCG industry expanded
9.4% in the January-March quarter of 2021, according to Nielsen, owing to consumption-
driven growth and value expansion from higher product prices, notably for basics. Due to
several government programs (such as packaged staples and hygiene categories); high
agricultural produce, reverse migration, and a lower unemployment rate, rural India saw a
double-digit growth recovery of 10.6 percent in the third quarter of FY20. The FMCG market
have chance to move by an increase in rural consumption in coming years. From US$ 263
billion in 2019-20, the Indian processed food market is expected to grow to US$ 470 billion by
2025. Market grew by 14.6 percent, while metro markets grew for the first time in two quarters.

FMCG famous brands like Johnson & Johnson, Himalaya, Hindustan Unilever, ITC, Lakmé,
and others (which have controlled the Indian market for decades) are now fighting against D2C
start-ups like Mamaearth, The Moms Co., Bey Bee, Azah, Nua, and Pee Safe. Market titans
like Revlon and Lotus took 20 years to reach the Rs. 100 billion revenue threshold, whilst new-
age D2C businesses like Mamaearth and Sugar took four and eight years, respectively. In 2020,
companies with dedicated websites saw an 88 percent increase in consumer demand year over
year. Since then, more firms have begun to follow the direct-to-consumer approach, and India
today has over 800 D2C brands with a market value of US$ 101 billion.

RECENT TRENDS IN INDIAN FMCG SECTOR

1. Increased focus on Digitization:

During the COVID-19 crisis, digitization was a major trend in the Indian FMCG business.
Most FMCG businesses partnered with prominent e-commerce websites such as Flipkart,
Big-basket, Groffers, and others to distribute items to customers while following safety
regulations. According to an industry expert, e-sales commerce's share in the Indian FMCG
sector will rise from 2-3 percent pre-COVID to 4.5 percent post-COVID.

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2. Cloud Kitchens:

Most food and beverage firms are actively migrating to cloud kitchen models as a result of the
sharp drop in customer footfall. This strategy is primarily supported by tie-ups, which
collaborate with food aggregators to provide online ordering and delivery services. In India,
this trend is predicted to increase by 15% in the next months.

3. Health and Wellness Category:

Consumers are becoming more conscious of hygiene and well-being. Organic items, healthy
foods, and self-care hygiene products are all in high demand. Leading FMCG firms are
embracing these new trends and putting their efforts into developing new healthcare goods.
Foreign enterprises must seek assistance from India's premier food and beverage consultancy
firms to capture this quickly shifting customer behavior. A competent consumer goods and
retail consultant can assist with identifying new market opportunities and developing effective
long-term growth strategies.

4. Increase in Packaged Products:

Following the health and hygiene trend of the COVID era, there is a growth in demand for
packaged food products in the food and beverage market. Packaged ginger and garlic pastes,
ready-to-cook cuisine, and ready-to-eat food products are all popular with customers. In
addition, there is a growing demand for immunity-boosting foods and beverages such as herbal
tea, aloe-vera juice, and other similar products.

1.3.3 COMPETITORS OF THE INDUSTRY

Hindustan Unilever Limited

ITC
Heinz
Procter and Gamble
Nestle
Dabur
Godrej
Colgate
Marico
Britannia
Venky s
15
 MTR
Everest
Tata Group

1.4 COMPANY PROFILE

1.4.1 INTRODUCTION TO COMPANY

HUL is India's biggest retailer of fast-moving consumer goods. Nine out of ten Indian
with once-in-a-lifetime
opportunity to shape a better future. They are known for strong brands, significant social
impact, and commitment to ethical business practices. In the summer of 1888, visitors to the
Kolkata dock noticed containers full of Sunlight soap bars bearing the words "Made in England
by Lever Brothers" etched on them. A new era of branded Fast Moving Consumer Goods
marketing began as a result of it (FMCG).

Lifebuoy, as well as well-known brands like Pears, Lux, and Vim, followed in 1895. The well-
known Dalda brand was created in 1937, and Vanaspati was introduced in 1918. In November
1956, these three firms united to become HUL; HUL was the first foreign subsidiary to offer
10% of its stock to the Indian public. Brooke Bond first set foot in India in 1900. Red Label
tea was introduced to the country in 1903. Brooke Bond & Co. India Limited was founded in
1912 as a subsidiary of Brooke Bond & Co. in the United Kingdom. Brooke Bond was acquired
by Unilever in 1984. In 1898, the former Lipton Company formed ties with India. Lipton was
sold to Unilever. Since 1947, Pond's (India) Limited has operated in India. Pond's USA was
acquired by Unilever in 1986 as part of a multinational takeover. HUL has been a strong
responder to the stimulation of economic growth since its inception. The expansion has been
accompanied by judicious diversification, always in accordance with Indian perceptions and
goals. The liberalization of the Indian economy, which began in 1991, represented a distinct
inflection point in HUL's and the Group's economic trajectory. Without any limits on
production capacity, the company was able to investigate every single product and opportunity
category after the regulatory framework was removed. At the same time, deregulation allowed
for alliances, acquisitions, and mergers. The old Tata Oil Mills Company (TOMCO)
amalgamated with HUL on April 1, 1993, in one of the most noticeable and talked-about
developments in Indian business history. In 1996, HUL and Lakme Limited, another Tata firm,
founded Lakme Unilever Limited, a 50:50 joint venture to promote Lakme's market-leading
16
cosmetics and other relevant items from both companies. In 1998, Lakme Limited sold its
brands to HUL and relinquished its 50% ownership in the joint venture to the corporation. On
the Foods and Beverage front, the 1990s saw a slew of important mergers, acquisitions, and
alliances. Brooke Bond purchased Kothari General Foods, which had strong holdings in Instant
Coffee, in 1992. It bought the Kissan business from the UB Group and Cadbury India's Dollops
Ice-cream business in 1993. Tea Estates and Doom, two Unilever plantation enterprises, were
amalgamated with Brooke Bond as a means of backward integration. Brooke Bond India and
Lipton India amalgamated in 1994 to become Brooke Bond Lipton India Limited (BBLIL),
giving the traditional beverage sector more focus and assuring harmony. The debut of BBLIL
in 1994 was a watershed moment in the company's history.

Finally, on January 1, 1996, BBLIL and HUL amalgamated to form HUL. Pond's (India)
Limited (PIL) and HUL merged in 1998 as a result of the internal restructuring. Apart from a
similar distribution system for Personal Products since 1993, the two companies had major
overlaps in the Personal Products, Specialty Chemicals, and Exports divisions. They also
shared a management pool and a technological foundation. The merger was carried out in order
for the Group to profit from scale economies in both domestic and export markets, as well as
to fund investments needed to aggressively create new categories.

HUL purchased the Amalgam Group of Companies' Cooked Shrimp and Pasteurized Crabmeat
business in 2003, making it a leader in value-added Marine Products exports.

In the early 2000s, HUL launched a wave of new commercial ventures. Shakti is a project that
began in 2001. It is a rural programme that focuses on small villages with populations of less
than 5000 people. It's a one-of-a-kind win-win strategy that boosts rural prosperity while also
benefiting businesses. Over 45,000 Shakti entrepreneurs currently operate in over 100,000
villages across 15 states, reaching over 3 million people. With the Ayush product line, HUL
entered the Ayurvedic health and beauty center category in 2002.
operating framework, which had been piloted in 2013, was officially launched in 2014.
With the addition of sales offices in Lucknow, Indore, and Bangalore to the current sales offices
in Delhi, Kolkata, Mumbai, and Chennai, the number of sales offices has grown from four to
seven. HUL purchased Indulekha, a luxury hair oil company with strong Ayurvedic credentials,
-of-a-kind urban water, hygiene, and sanitation
community center in Azad Nagar, Ghatkopar, one of Mumbai's major slums.On March 11th,
2017, a new state-of-the-art manufacturing plant at Doom Dooma Industrial Estate, Assam,

17
was officially opened. In 2020, HUL announced the acquisition of VWash, the industry leader
in female intimate hygiene, in order to access a market niche that is currently underserved but
fast developing. With the merger of GSK Consumer Healthcare and Hindustan Unilever
Limited in 2020, iconic health food drink brands Horlicks and Boost will join HUL's foods and
refreshment portfolio, making it India's largest F&R company.

1.4.2 MISSION VISION AND STATEMENT

to add vitality to life. We meet every day needs for nutrition,

hygiene and personal care with brands that help people feel good, look good and get more out of
life.

vision is to make sustainable living commonplace. We believe this is

the best long-term way for our business to grow.

1.4.3 BOARD OF DIRECTORS

1) Sanjiv Mehta Chairman & Managing Director

2) Ritesh Tiwari Executive Director, Finance & IT and Chief Financial Officer
3) Willem Uijen Executive Director, Supply Chain
4) Dev Bajpai Executive Director, Legal & Corporate Affairs and Company Secretary
5) O. P. Bhatt Independent Director
6) Sanjiv Misra Independent Director
7) Kalpana Morparia Independent Director
8) Leo Puri Independent Director
9) Ashish Gupta Independent Director

1.4.4 OBJECTIVES OF HUL

Unilever has roots in local cultures and markets around the world give them strong
relationship with consumers and are the foundation for their future growth. They are
bring their wealth of knowledge and international expertise to the service of local
consumers - a truly multi-local multinational.
long-term success requires a total commitment to exceptional standards of
performance and productivity, to working together effectively, and to a willingness to
embrace new ideas and learn continuously. It is so important is this fast paced scenario.
18
 To succeed also requires, company believes, the highest standards of corporate behavior
towards everyone they work with, the communities they touch, and the environment on
which they have an impact.
This is their road to sustainable, profitable growth, creating long-
shareholders, the people they are in touch with, and business partners.

1.4.5 PRODUCT PROFILE OF HUL

Unilever has wide variety products in over 20 consumer categories majorly Food & Drink,
Home care products, and Personal care& hygiene products serving millions of customers
across the country and is undoubtedly the market leader in the FMCG sector in India.
Some of the brands of HUL are as follows;
Dove
Lux
Lifebuoy
Pears
Hamam
Lyril
Rexona
Surf Excel
Comfort
Clinic Plus
Sunsilk
Fair & Lovely

Vaseline
Bru
Taj Mahal
Lipton
Kisan,
Annapurna
Magnum
Close up

19
The company has vast product range and wide distribution network which heads to provide
products fulfilling the needs and preferences of all the target audience across India. Unilever
has always give importance on innovative and creative product offerings and adapting rapidly
to the market demands, which aids to maintain its market leadership.

1.4.6 SWOT ANALYSIS OF HUL

STRENGTH:

HUL has its presence in pan India with over 8 million retail chains and supermarkets
where its products are widely available.

HUL has a deep brand image, a well-known legacy and well-settled up company with
a wide range of established brands and products.

WEAKNESSES:

The high competition in the FMCG industry, pushing backward in terms of market
share of the company.
HUL has not yet touched not more into Ayurveda products, when the other competitors
are well equipped in that particular product portfolio.

OPPORTUNITIES:

In comparison to metropolitan areas, the FMCG sector in rural and semi-urban areas
is predicted to grow at a faster rate due to rising disposable incomes, education, and
the youth population. The corporation can make good use of this because it already has
a strong brand and a large distribution network.
The corporation can diversify its portfolio by acquiring diverse products using its
healthy cash reserve position and brand image legacy.

THREATS:

HUL operates in a highly competitive market, with the government of India allowing
100 percent FDI and new global corporations setting up shop, the company confronts
a significant challenge from its rivals.

20
The company is extremely reliant on the price of raw materials. Inflation can reduce
the company's margins if it is in a high-volume, low-margin industry.
The shift in the public's preference for organic and healthful products may help some
unorganized and small businesses gain market share, which could pose a threat to
HUL.

21
 CHAPTER- II: REVIEW OF LITERATURE

Sara Fernandez Lopez and David Rodeiro Pazos (2020) come up with a research on Effects
of working capital management on firms' profitability management (WCM)
is a critical subject for businesses concerned with profitability, particularly for small and
medium businesses facing severe financial restrictions and investing a large portion of their
capital in current assets. The impact of main WCM regulations - day sales arrears, day goods
(DIO), days due (DPO), and money transfer cycle (CCC) - on firm profits is examined in this
research. Empirical research shows that DIO and CCC have a negative impact on company
profitability, implying that cheese-making businesses should lower their output.

Tanveer Bagh, Muhammad Imran Nazi, Muhammad Asif Khan, Muhammad Atif Khan
and Sadaf Razzaq (2016)
The goal of this study was to see how working
capital management (WCM) affected the performance of a group of manufacturing companies.
Quantitative research approaches, such as correlation matrices, multiple regressions, secondary
data, and objective sampling, have been created. Inventory turnover (ITO), cash conversion
cycle (CCC), Average Collection Period (ACP), and Average Payment Period (APP) have all
been employed as independent variables in the WCM (APP). The dependent variable was fixed
performance (FP), which included asset (ROA), return on equity (ROE), and equity (EPS).
Despite the fact that APP, ITO, and CCC all have a negative and significant impact on ROA,
multiple regression analyses show that ACP has a favourable impact.

Julius Enqvist, Micheal Graham and Jussi Nikkinen (2014) have conducted a study

Working capital policies were once again a focus during the recent recession of 2007-2008.
They look at the role of business cycles in terms of working capital in this paper. They discover
the impact of the business cycle on working capital - the profit link is more prominent in
recessions than in booms. During times of recession, it emphasises the significance of proper
inventory management and acceptable account transition periods. The findings demonstrate
that active working capital management is important and should be included in institutional
financial planning.

22
Sarbapriya Ray (2012) has been studie
Management Components on Corporate Profitability: Evidence from Indian Manufacturing
Firms The purpose of this study is to look into the link between working capital management
components and profitability. The impact of many variables on working capital management
was investigated, including the average accumulation period, daily commodity turnover,
average payment period, cash conversion cycle, current ratio, loan ratio, and total asset ratio.
Between the aspects of working capital management, the result shows a strong negative
association between the number of approved accounts, the cash flow cycle, and the corporate
profitability financial debt ratio. There has been a negative association between average days
of accounts payable and t in previous studies.

Saswata Chatterjee (2010) has analysed that Working capital management is essential as it
has a direct impact on profit and cash flow. Traditionally, a company's working capital is
reduced in proportion to its sales if it wants to assume more risk for large profits and losses. It
increases the quantity of working capital it has if it wishes to improve its liquidity. Despite the
fact that this policy will result in a decrease in sales volume and, as a result, profit. As a result,
a business must strike a balance between cash flow and profit. The time of operational
collection or acceptable days, inventory turnover in days, average payment period or days to
be paid, cash conversion cycle, current ratio, and rapid ratio of companies to net operating
profit all have an impact on working capital management.

Mynard E. Rafuse (1996) stated that efforts to enhance working capital by delaying loan
disbursement to debtors are having a negative impact on individuals and the economy.
Changing the debtor and debtor status for specific ranges within a value system rarely leads to
claims or net benefits. Stock Reduction System - Suggests Significant Economic Gains and
Other Important Advantages Encourages businesses seeking centralised working capital
reduction measures to concentrate on stock management tactics based on "Lean Supply Chain"
methodologies.

Kesseven Padachi (2006) the goal of this article is to study trends in working capital
management and their impact on business performance. It is argued that well-designed and
well-executed working capital management will contribute favourably to an organization's
value creation. Higher investment in inventories and receivables is connected with lower
earnings, according to regression studies. Inventory days, accounts receivable days, accounts
payable days, and money transfer cycle are the primary factors in the analysis. Working capital

23
management and profitability have been determined to have a strong substantial link in the
past. An examination of the five industries' liquidity, profitability, and efficiency.

Nihat Aktas (2015) conducted study on Is working capital management value-

enhancing? Evidence from firm performance and investments The findings show that I an
optimal level of working capital regulation exists, and (ii) institutions that converge to that
level improve their equity and performance (increase or decrease investment in working
capital). Keep in mind that corporate investment is a powerful WCM tool that leads to improved
institutional performance. Working capital management allows organisations to repurpose
unused corporate resources for high-value activities like fundraising.

Hakim Lyngstadaas, Terj Berg (2016) have done a study on working capital management
and the study shows some interesting points. The results show that reducing the cash
conversion cycle will increase profits. A. Although the selected condition remains, it does not
affect the results of the previous analysis. Similar results are obtained when controlling
industry-specific effects, supporting the consistency of the results.

Russell P Bojsjoly, Thomas E Conine Jr and Micheal B McDonald IV (2020) have come
up with study regarding the working capital management. . The influence of continuous
improvement initiatives and aggressive working capital systems on turnover, inventory
turnover, days in arrears, and the money transfer cycle is examined in this research. Significant
changes in techniques and inclination statistics for these variables, which correspond to careful
financial management and little risk taking on trade credit, were discovered by the researchers.
The transportation and communications business has strong outcomes, whereas financial
services has dismal ones. The consequences of equity valuation are reflected in this matrix, as
are the higher returns indicated by the return on capital invested.

Anna Maria Talonpoika, Timo Karri, Miia Pirttila and Sari Monto (2016) carried on a
study to find some strategies for financial working capital management for any organisation.
The study was been conducted to develop strategies for financial working capital management
and to present previous literature on financial working capital management and its measures.
The results identified 11 possible strategies for financial working capital management which
all sees at increasing financial working capital.

24
Sushma Vishnani and Bhupesh Kr. Shah (2007) Impact of
It appears that research
into the impact of working capital management practises on a company's profitability is
necessary. Traditionally, a company's working capital is reduced in proportion to its sales if it
wants to assume more risk for large profits and losses. It increases the quantity of working
capital it has if it wishes to improve its liquidity. Despite the fact that this policy will result in
a decrease in sales volume and, as a result, profit. As a result, a business must strike a balance
between cash flow and profit. The influence of profitability capital policies was investigated
using regression analysis and estimating the association between profitability ratio and some
important working capital indicator ratios.

Nasruddin Zainudin(2015) have been examines the importance of working capital

management concepts and components, notably the receivable management, inventory
management and payable management through their respective proxies as average collection
period, inventory conversion period and average payment period. Working capital management
is best discussed philosophically when theories are used, due to its importance. This research
aims to clarify the aspects and concepts of working capital management, as well as to establish
a link to some pertinent theories that may appear to be useful in understanding them. Agency /
stakeholder, risk and return, cash conversion cycle, operational cycle, and resource based
theory are some of these theories. The study determined that it was necessary due to the lack
of this sort of literature and the field of specialised working capital management. In order to
address this issue, the publication took an ideological research strategy.

Shikha Bhatia and Aman Srivastava (2016) have done an empirical study. The purpose of
this study is to look into the link between working capital management and firm success in a
fast-moving market. Ordinary least square (OLS), fixed- and random-effects models, and the
extended method of moments are used to conduct the analysis over a lengthy period of time
(GMM). Market-based performance measures are used to measure firm performance in
addition to accounting performance. This study from India discovers a negative link between
working capital management and strong performance, as well as the requirement to manage
working capital well for increased profitability.

Ntui Ponsian, Kiemi Chrispina, Gwatako Tago and Halim Mkiibi (2014) used to study
The Effect of Working Capital Management on Profitability
conclusions are as follows: First, there is a positive association between the money transfer

25
cycle and the organization's profitability. It means that increasing the cash conversion cycle
will increase the firm's profitability, and managers will be able to create positive value for
shareholders by raising the cash conversion cycle to a reasonable level; second, there is a
negative relationship between liquidity and profitability, meaning that profit rises as liquidity
falls.

BenUkaegbu (2014) has researched on the topic of The significance of working capital
The study states that there is a strong negative
relationship between profit, net operating profit and monetary conversion cycles through
various industrialized typologies. Negative association indicates that as the cash flow cycle
increases, the firm's profitability decreases.

Mr. Shivakumar and Dr.N Babitha Thimmaiah (2016) have been come up with study on
working capital management. The paper seeks to provide conceptual insights into working
capital management and assess its impact on the cash flow and profitability of Coal India
Limited. Efforts have also been made to check the availability of cash and profitability. This
correlation was also applied to Spearman's rank method.

Mubashir Hassan and S. K. Shrivastava (2019) have done a paper tries to evaluate the impact
of working capital management on the profitability of Tata Motors using cash conversion cycle.
The final conclusion this study indicates the significant level of relationship between
profitability indices and working capital factors.

Sankalp Geetam and Pradeepta Kumar Samanta (2017) stated that Working capital
management plays a vital and a crucial role in any corporates. The study found that managerial
efficiency in making judgments about the company's short-term financial demands is
important. The construction industry's working capital management differs from that of other
businesses in terms of law, tax policy, financial closure, distribution network, logistics, credit
policy, political-social-technological-economic status, and shareholder relationships. While
working capital has a large impact on profitability for some characteristics, it also has a large
impact on profitability for others.

26
Dr.V R Palanivelu, B. Saraswathi Devi (2014) have completed a research on
working capital management with special reference to Steel Authority of India Limited,
working capital is the lifeblood of any firm. Short-term
financial management and working capital management are the subjects of a research. Working
capital is the portion of a company's capital that is required for short-term financing of current
assets, and it is constantly converted to cash. As a result, this study examines the company's
financial viability, structure, and working capital utilization during a five-year period, from
2008-09 to 2012-13.

S. Sangeetha and M.Pavithra (2019) A Study on Working Capital

Management of Tata Motors . And the research states that by reducing the amount of money
locked up in current assets, companies can lower their borrowing costs and/or increase the
amount of money available for expansion. Using the CFO magazine's annual Working Capital
Management Survey, they provide insights into the performance of surveyed organizations
across key components of working capital management. The company discovers that there are
considerable variances in working capital measurements across industries over time.
Furthermore, it is discovered that these working capital measurements shift dramatically over
time within industries.

Debabrata Jana (2017) mpact of Working Capital Management on

because of its impact on profitability and liquidity, working capital management is critical to a
company's success. The goal of this research is to look at the relationship between working
capital management tactics used by FMCG companies in India and how effective they are. The
study demonstrates a substantial positive and negative association between profitability and
working capital management using panel data analysis. As a result, efficient working capital
management for FMCG companies not only has a good association with profitability, but also
has a major impact.

27
2.2 RESEARCH GAP

One crucial component that is omitted out in the above-mentioned research publications is how
to evaluate working capital performance. It is vital to assess the link between the component
sections of financial statements in order to gain a better knowledge of the firm's liquidity and
profitability in terms of working capital management.

The initial step is to analyze all of the information in financial statements in order to choose
the most relevant data for decision-making and to analyze working capital performance.

The second stage is to draw attention to the important relationships among the ordered data.

The final stage is to analyze the data and form findings and inferences. In a nutshell, evaluation
working capital management is the selection, connection, and assessment process.

Working capital performance is required to determine the firm's financial health and weakness
by effectively establishing relationships between the balance sheet items and the profit and loss
account. It entails the selection of data or information for forecasting the firm's financial
liquidity and status using financial statements. Evaluating patterns in key financial data,
comparing financial data across organizations, and analyzing key working capital related ratios
are all ways to accomplish this. It also entails a review of the firm's past, present, and expected
future financial position.

28
 CHAPTER-III: RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN

This study used a descriptive research approach to describe recent events in the organization,
as well as an analytical research method to examine the findings utilizing research instruments.
The final results and conclusion is find on the 5 years financial statements data that extracted
from the annual report of the Hindustan Unilever Limited from their official webpage. Data on
performance of working capital liquidity position related data also taken as a
secondary data. Because of time
this research on the basis of primary data.

3.2 OBJECTIVES OF THE STUDY

To know how working capital is impacting profitability of HUL Company.

To study how working capital is managed in the company.
To study the liquidity position of the company through several ratios.
To study how the components of working capital (specifically, accounts receivable
management and inventory management) are working.
To examine what is the reasons for increase and decrease in net working capital during
study period.

3.3 NEED FOR THE STUDY

The study has been conducted for converting theory knowledge in to real-time
knowledge and analyzing of a problem.
The study is undertaken as part of the BCOM curriculum of Dayananda Sagar
University, Bangalore, India.
To get practical experience about working capital management of Hindustan Unilever
Limited.

29
3.4 RESEARCH QUESTIONS

1) How components of working capital performing in HUL Co.?

2) How effectively Hindustan Unilever Limited controlling day to day expenditure of the
company?
3) How working capital affects profitability of HUL?
4) What is the current working capital stability and the liquidity of Hindustan Unilever
Limited?

3.5 SCOPE OF THE STUDY

The actual scope of the study is identified after or during the project period. The main scope of
the study is to put practical knowledge regarding how companies are managing working capital
and the main sources of the working capital. This study is purely based on the ratio analysis
and statement of changes in working capital. It is a study which been conducted on the basis of
last 5 years financial report (secondary data) of Hindustan Unilever Limited.

3.6 DATA COLLECTION

Study is fully carried on the basis of secondary data. Secondary data is information that has
previously been gathered from primary sources and made accessible to academics for their own
research. It's a type of information that's been gathered previously. The secondary data is
collected from the company website, journals, articles, newspapers and other published
materials.

3.7 PERIOD OF THE STUDY

The financial statement of Hindustan Unilever Limited for the last 5 financial years have been
taken to analyze working capital during the study period using various analytical tools. The

30
3.8 RESEARCH TECHNIQUES AND TOOLS

Data has been analyzed using below mentioned financial techniques;

1. Ratio analysis
2. Statement of changes in working capital

Microsoft Excel has been used for gathering and analyzing the data. Calculations also done
with Excel.

3.8.1 RATIO ANALYSIS

In this particular study, ratio analysis has been used for analyzing the working capital. A ratio
is simple arithmetical tool which used to find out relationship between two variables. The ratio
analysis can be used for evaluating the short-term liquidity and working capital performance
of the company. Mainly used ratios for working capital performance are as follows;

1) Current ratio
2) Acid test ratio
3) Inventory turnover ratio
4) Receivables turnover ratio/ Debtors turnover ratio
5) Working capital turnover ratio
6) Net profit ratio

Current ratio

The current ratio is a liquidity and efficiency ratio that assesses a company's capacity to pay
down short-term debts using current assets. Because short-term liabilities are due within a year,
the current ratio is an essential indicator of liquidity. Includes prepaid, inventory, receivables
and marketable securities on the numerator.

Acid test ratio

This ratio examines liquidity from one immediate aspect than does the current ratio by
eliminating inventory and prepaid from current assets. Removes the inventory because it
turnover at a slower rate than receivables or cash, and assumes that the company will be able
to sell the items to a customer and collect cash.

31
Inventory turnover ratio

The inventory turnover ratio is that illustrates how well inventory is handled over time. This
figure represents the average number of times inventory is "turned" or sold during a given time
period. In other words, it counts the number of times a company's total average inventory dollar
amount was sold throughout the year.

Receivables turnover ratio/ Debtors turnover ratio

Accounts receivable turnover determines how many times a company's accounts receivable
may be converted into cash in a given period. In simple words, the receivables turnover ratio
evaluates how many times a company's average receivables have collected over the year.

Working capital turnover ratio

Working capital turnover ratio analyze how effectively a company converts its working capital
into more sales. The working capital turnover ratio illustrates the link between the money spent
to finance business operations and the revenues generated as a result of such operations.

Net profit ratio

The net profit ratio is a most widely used profitability analyzing tool that depicts the
relationship between a company's net profit after taxes and its net sales revenue. It is calculated
by dividing the net profit after tax by the net sales for the period to determine the amount of
profit earned by an entity for each amount of sales. The income statement or profit and loss
account can provide both of the statistics needed to determine this ratio. The profit margin on
sales is also known as the net profit ratio.

3.8.2 STATEMENT OF CHANGES IN WORKING CAPITAL

The increase or reduction in the individual elements of current assets and current liabilities is
measured using a statement of changes in working capital. It also displays the working capital's
net increase or decrease over the accounting period. The difference in net working capital from
one accounting period to the next is defined as a change in working capital. A management
goal is to minimize the requirement for additional funding by reducing any upward increases
in working capital.

32
3.9 LIMITATIONS OF THE STUDY

The study is based on the secondary data, hence possibility of incomplete information
is there.
The study is only based 5 years financial report, so data is limited for study working
capital management.
Interactions with concerned department and the management is limited.

33
 CHAPTER IV-DATA ANALYSIS AND INTERPRETATION

4.1 RATIO ANALYSIS

In this particular study, ratio analysis has been used for analyzing the working capital. A ratio
is simple arithmetical tool which used to find out relationship between two variables. The ratio
analysis can be used for evaluating the short-term liquidity and working capital performance
of the company. Ratio analysis methods are used by analysts and investors to investigate and
evaluate the financial health of organizations by thoroughly evaluating previous performance
and financial statements.

Mainly used ratios for working capital performance are as follows;

1) Current ratio
2) Acid test ratio
3) Inventory turnover ratio
4) Receivables turnover ratio
5) Working capital turnover ratio
6) Net profit ratio

4.1.1 CURRENT RATIO

The current ratio is a liquidity and efficiency ratio that assesses a company's capacity to pay
down short-term debts using current assets. Because short-term liabilities are due within a year,
the current ratio is an essential indicator of liquidity. Includes prepaid, inventory, receivables
and marketable securities on the numerator.

This current ratio falls within the category of liquidity ratios, which include a number of other
financial indicators. All of these ratios evaluate a company's performance in terms of its
financial stability in proportion to its outstanding debt. A company's investors, creditors, and
suppliers all need to know the current ratio before making decisions. The current ratio is a
useful measure for evaluating the viability of a company's investment.

34
Formula

Current ratio = Current Assets/ Current Liabilities

4.1 Current assets vs Current liabilities

16000

14000 13640
Amounts

11908
12000 11139 11374
10841

10000 9411 9104

8636 8353
8000 7202

6000

4000

2000

0
2016-17 2017-18 2018-19 2019-20 2020-21
Years

Current Asset Current Liabilities

Source: Annual Report from HUL Graph-4.1

Table 4.1: Current Ratio Table

Years Current Ratio
2016-17 1.31
2017-18 1.29
2018-19 1.36
2019-20 1.31
2020-21 1.26

35
 4.2 Current ratio in various years
1.38
1.36
1.36

1.34

1.32 1.31 1.31

1.3 1.29
Current ratio

1.28
1.26
1.26

1.24

1.22

1.2

1.18
2016-17 2017-18 2018-19 2019-20 2020-21
Years

Source: Table: 4.1 Graph-4.2

INTERPRETATION

From the above table and graph, undoubtedly shows that current assets and current liabilities
are the components of current ratio in which the values are extracted from the balance sheet
from the past five years and the analysis is using the trend analysis.

In the year 2016-17, the current ratio is 1.31 which is greater than the value 1, this indicates
that the organization is able to meet its obligations and is more liquid and appears to be in a
stronger situation, and that the company is profitable. In addition, the organization is effectively
utilizing present assets and managing its working capital.

In the year 2017-18, the current ratio is 1.29 which is greater than the value 1, this means the
company can pay its current liabilities 1.29 times easily and the company is in profit but here
36
 ring to the previous
accounting year. Even though company is not keeping its assets more drastically and avoiding
the idle assets situation. In the 2017-18 year, the current assets and current liabilities have been
increased in parallel way so that, identified that the current ratio come down not just because
of neither current assets nor current liabilities increased or decreased in drastically.

In 2018-19 was the year in which the current ratio is better or comparatively highest in last five
years. This was the just before of covid-
liquidity position is better comparing to other years. In the financial year 2018-19 the current
ratio ended up with 1.36 and it was the highest last 5 years.

In 2019-20 was the year which whole economy crashed due to covid-19 lockdown but still can
see that the current ratio not come down drastically which is 1.31 ,it is just similar to 2016-17
financial year. Even current liabilities and current assets have been moved up slightly as well.

In the year 2020-21, found that the lowest of 5 years current ratio has been drawn and the
pandemic impact might been affected the performance. But cannot assume that the current ratio
come down just because of pandemic situation, clearly can identify that the current assets and
the current liabilities have been increased during that year. During 2010-21 financial year both
current assets as well as current liabilities had touched 10,000 crore which was not happened
ever before.

These 5 years current ratio trend, can analyzed that the company never performed badly on
their liquidity performance and the current ratio has been moved from 1.26 to 1.36 during the
study period. The company never came in the position of idle assets creation it is good in terms
of company the company properly maintaining current assets and current liabilities as result
the working capital performance of the company as well in a better position despite of small
changes in the current ratio during the 5 years of study period.

From the above trend analysis we can explain that the company is maintaining their liquidity
from the past 5 year uched beyond 1.5 times, this is also
a concern.

37
4.1.2 ACID TEST RATIO

This ratio examines liquidity from one immediate aspect than does the current ratio by
eliminating inventory and prepaid from current assets. Removes the inventory because it
turnover at a slower rate than receivables or cash, and assumes that the company will be able
to sell the items to a customer and collect cash.

Formula

Acid test ratio = Quick Assets/ Current Liabilities

OR

Acid test ratio= Current Assets- Inventory/ Current Liabilities

Table 4. 2: Current asset, inventory and current liabilities

(All amounts in crores)

Year Current assets Inventory Current liabilities
2016-17 9411 2362 7202
2017-18 11139 2359 8636
2018-19 11374 2422 8353
2019-20 11908 2636 9104
2020-21 13640 2383 10841
Source: Annual Report from HUL

Table 4.3 Acid test ratio

Years Acid test Ratio

2016-17 0.98
2017-18 1.02
2018-19 1.07
2019-20 1.02
2020-21 1.04

38
 4.3 Quick ratio in various years
1.08
1.07

1.06

1.04
1.04

1.02 1.02
1.02
Quick ratio

0.98
0.98

0.96

0.94

0.92
2016-17 2017-18 2018-19 2019-20 2020-21
Years

Source: Table 4.3 Graph-4.3

INTERPRETATION
The methodology is identical to the current ratio but eliminates inventories and prepayments,
or commonly stock in hand, which gauges liquidity using more liquid form of current assets,
as seen in the table and graph above.

In the year 2016-17, the acid test ratio ratio stands for 0.98 which is less than the value 1, it
indicates the company is having difficulty, this means the company have less quick assets to
cover its current liabilities in short term, the company has Rs.0.98 of quick assets which cannot
be paid for the value of Rs.1 of current liabilities. Hence companies with less quick ratios are
not favored by the creditors for investments.

In 2017-18, the quick ratio crossed 1 identical mark and stands at 1.02, which is greater than
value 1, it indicates the company sound financial position, and this has enough quick assets to

39
cover its current liabilities. For every Rs.1 of current liability, the company has Rs.1.02 of
quick assets to pay for it. Hence companies with good quick ratios are favored by the creditors.

In the year 2018-19, the acid test ratio stands for 1.07 which is highest of all time during the
study period. As same as current ratio of 2019-
s is in the well and good in
2018-19 period comparing to other financial years rolled in this study.

The clarification of quick ratio before the pandemic Covid-19, the company is more liquid
despite of 2016-17 years 0.98 and in better position in 2018 and 2019 the company is able to
pay its current liabilities using current assets or quick assets. Hence the creditors may not be
interested to pay for the investments.

In the year 2019-20, the quick ratio stands for 1.02 which is more than the value 1, and same
as when compared to 2017-18 period and 2019-20 the company has maintained its quick ratio
just above par line, it indicates the company slight edge in financial position, this has enough
quick assets to cover its current liabilities, the company has Rs.1.02 of quick assets to pay for
the value of Rs.1 of current liabilities.

The clarification of quick ratio of 2020-21 after the pandemic Covid-19 was at 1.04, the
company can easily liquefy and in better position than 2019-
highest mark of 1.07 which was in the 2018-19 hence the company can easily pay for its current
liabilities. Hence the creditors may be interested to pay for the investments.

These 5 years acid-test ratio trend, can analyzed that the company performed badly only once
which is in the year 2016-17 and that year company unable to pay off its current liabilities with
-test ratio has been moving
around from 0.98 to 1.07 during the study period. As a result the liquidity performance of the
company as well in a better position despite of small variations and 2016-17 bad performance
in the acid-test ratio during the 5 years of study period.

From the above trend analysis we can explain that the company is maintaining their liquidity
-test ratio never touched beyond 2.0 times, but
company touched below 1.0 mark which was in 2016-17.

40
4.1.3 INVENTORY TURNOVER RATIO

The inventory turnover ratio is that illustrates how well inventory is handled over time. This
figure represents the average number of times inventory is "turned" or sold during a given
time period. In other words, it counts the number of times a company's total average
inventory dollar amount was sold throughout the year.

Formula

Inventory Turnover Ratio= Net sales/ Closing inventory

OR
Inventory Turnover Ratio= COGS/ Avg. inventory
COGS=Cost of goods sold

Average Inventory= (Opening inventory + Closing inventory)/ 2

Inventory Turnover in days = 365/ inventory turnover ratio

Table 4.4: Net sales and inventory of HUL

Year Net Sales Closing Inventory

2016-17 34,487 2362
2017-18 35,218 2359
2018-19 38,224 2422
2019-20 38,785 2636
2020-21 45,996 3383
Source: Annual Report of HUL

Table 4.5: Inventory turnover ratio

Years Inventory Turnover Ratio Inventory turnover days

2016-17 14.60 25
2017-18 14.93 24.45
2018-19 15.78 23.13
2019-20 14.71 24.81
2020-21 13.59 26.85

41
 4.4 Inventory turnover ratio

16
15.78

15.5

15
14.93
14.71
14.6
Inventory turnover ratio

14.5

14
13.59
13.5

13

12.5

12
2016-17 2017-18 2018-19 2019-20 2020-21
Years

Source: Table 4.5 Graph-4.4

INTERPRETATION
A high ratio means high sales, fast stock turnover and a low stock level. A low stock turnover
ratio means the business is slowing down or with a high stock level.

In the year 2016-17, the inventory turnover ratio is 14.6, already know that a higher inventory

inventory, implying that the company may sell inventories in a short amount of time or at a
faster rate, so resolving the company's overstock or inventory load.

42
In the year 2017-18, the inventory turnover ratio is 14.93 which is slightly high when compared
to previous financial year. Concern with Fast Moving Consumer Goods (FMCG) industry an
ideal inventory turnover ratio is 8 or above. Hence, the company acquires around double of the

and company has no need to hold inventory for long period.

As we see earlier in liquidity ratios, the 2018-19 period has the highest inventory turnover ratio
as well which is 15.78. It shows that high sales and insufficient inventory, implying that the
company might have sold inventories in a short amount of time or at a faster rate, hence
avoiding the company's overstock or inventory load and high warehouse costs.

We know that lower the inventory turnover ratio not good for the firms future. It implies weak
sales and excess inventory this means the company is not able to sell the inventories within a
short period of time or the company is selling the inventories at a slow phase this does not
solves the firms overstock or the load of inventories.

In the year 2020, the inventory turnover ratio is come down from 15.78 to 14.71 which is less
when compared to previous year and the year 2019. The lower the inventory turnover ratio not
good for the future. It observes that sluggish sales and excess inventory, implying that
the company is unable to sell inventories in a timely manner or is selling them at a poor pace.
This does not alleviate the company's overstock or inventory burden.

In the year 2020-21, the company performs lowest inventory turnover ratio compared to other

level has been increased with

regards to high production.

It is seen from the above graph and table that during the year 2017-2021 the Inventory turnover
ratio was moving from 13.59 to 15.78. In the year 2016-17 inventory turnover ratio is 14.6
times, in the year 2017-18 it increased to 14.93 times, But in the year 2018-19 it increased to
15.378 times which is the highest in last 5 years. There was a subsequent decrease in the year
2019-20 and 2020-21 to 14.71 times and 13.59 times respectively, even after company
performed high sales comparing to other financial years.

43
4.1.4 RECEIVABLES TURNOVER RATIO

Accounts receivable turnover determines how many times a company's accounts receivable
may be converted into cash in a given period. In simple words, the receivables turnover ratio
evaluates how many times a company's average receivables have collected over the year.

Formula

Receivables Turnover Ratio= Net Sales/ Average Receivables

Average receivables= (Opening receivables + Closing receivables)/2

Receivable Turnover in days = 365/ Receivables turnover ratio

Table 4.6: Net sales and Average receivables

Year Net Sales Average Trade receivables

2016-17 34,487 996
2017-18 35,218 1037.5
2018-19 38,224 1410
2019-20 38,785 1359.5
2020-21 45,996 1347
Source: Annual Report of HUL

Table 4.7: Receivable Turnover Ratio

Years Receivable Turnover Ratio Receivable Turnover in
days
2016-17 34.63 10.53
2017-18 33.95 10.75
2018-19 27.11 13.46
2019-20 28.53 12.79
2020-21 34.15 10.68

44
 4.5 Receivables turnover ratio

40

34.63 33.95 34.15

35

30 28.53
27.11
Receivables turnover ratio

25

20

15

10

0
2016-17 2017-18 2018-19 2019-20 2020-21
Years

Source: Table 4.7 Graph-4.5

INTERPRETATION
In the year 2016-17 the receivable turnover ratio of HUL is 34.63 and receivables turnover
days is 10.53. Means the company is getting payment form debtors in 11 days of time, and it
is excellent in terms of receivable
is really good, efficient collection process or high quality customer base.

Comparing to the year 2016-17, the receivables turnover ratio of company in 2017-18 is
slightly high which is 14.95 and receivables collection period or turnover period is 10.75.

45
During 2017-18 period company performed well that the year 2016-17 in terms of their
receivables turnover but it is slightly less compared to 2016-17. In the year, 2017-18 the
receivable turnover ratio is 33.95 and receivables collection period 10.75.

In the year 2018-19, the receivable turnover ratio is come down little bit to 27.11, which is not

acid-test ratio were highest in that year which is highest in the last 5 performance. During
the year 2018-19, receivable turnover period is gone high which is 13.46. It indicates that the
company failed to conservative their credit policy, low satisfaction from customer base or failed
in terms of their collection process.

In the year 2019-20,

to previous year. But still receivables turnover ratio touched below 30 benchmark, which is
accurately 28.53. During the year receivables turnover period high which is 12.79, but
compares previous it come down slightly. It indicates that the company tried to conservative in
their credit policy or they might have tried to fasten collection process.

In 2020- ark of 30 again

and the ratio touched 34.15. During the year receivables turnover days is 10.68 and it is so good
in terms of their receivables collection. During the year 2020-
45,996 Cr which is in the highest of last 5 years. But the average receivables was 1,347 Cr

receivables collection days in terms

receivables turnover ratio was even better compared to 2019-19 and 2019-20 financial years.

Overall, in terms of receivables turnover ratio and days, Company performed really well
despite of slight variation in ratios in couple of years. During the study period the receivables
turnover ratio was around in between 27.11 and 34.63.

46
4.1.5 WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio analyze how effectively a company converts its working capital
into more sales. The working capital turnover ratio illustrates the link between the money spent
to finance business operations and the revenues generated as a result of such operations.

Formula

Working capital Turnover Ratio= Net Sales/ Working capital

Working capital= Current assets/ Current liabilities

Average Working capital = (working capital of the current year + working capital of the
previous year) / 2

Table 4.8: Net sales and Average working capital

Year Net Sales Average Working capital

2016-17 34,487 2554.5
2017-18 35,218 2356
2018-19 38,224 2762
2019-20 38,785 2912.5
2020-21 45,996 2801.5
Source: Annual Report of HUL

Table 4.9: Working capital Turnover Ratio

Years Working capital Turnover Ratio
2016-17 13.50
2017-18 14.95
2018-19 13.84
2019-20 13.32
2020-21 16.42

47
 4.6 Working capital turnover ratio

18
16.42
16
14.95
13.84
14 13.5 13.32
Working capital turnover ratio

12

10

0
2016-17 2017-18 2018-19 2019-20 2020-21
Years

Source: Table 4.9 Graph-4.6

INTERPRETATION
A greater ratio suggests efficient working capital utilization, while a low ratio indicates the
opposite. A large working capital turnover, on the other hand, is not a favorable position for
any business.

In the year 2016-17, the working capital was 13.5 this means the company is being very
-term assets and liabilities for supporting sales. This
indicates that a business is going smoothly and requires little financing. Money is moving in
and out on a regular basis, allowing the company to invest in expansion or inventories.

48
In the year 2017-18, the working capital is 14.95 which is more when compared to previous
year, this means the company is using -term assets and liabilities for
supporting sales. This demonstrates that the firm is working well and that it is not investing
excessively in accounts receivable and inventory to support its sales, which could result in an
excessive number of bad debts or obsolete inventory.

In the year 2018-19, the working capital is 13.84 which is less when compared to last year s
performance, this means the company is not used -term assets and liabilities
for supporting sales compared to previous year. This shows the company is running smoothly
and indicates that a business is not needed investing in too many accounts receivable and
inventory to support its sales,

In the year 2019-20, the working capital is 13.32 which is even less when compared to 2018-
-term assets and
liabilities for supporting sales compared to previous year. During this period the company
marks the lowest working capital turnover ratio in the study period.

In the year 2020-21, the working capital was 16.42 this means the company is being very
-term assets and liabilities for supporting sales. The
company touched down the highest working capital turnover ratio of ever. And this just after

performance is so good and company marinating current assets and current liabilities properly
to manage sales.

It is analyzed from the above graph and table that during the year 2017-2021 the working
capital turnover ratio was moving from 13.32 to 16.42. In the year 2016-17 working capital
turnover ratio is 13.5 times, in the year 2017-18 it increased to 14.95 times. There was a
subsequent decrease in the year 2018-19 and 2019-20 to 13.84 times and 13.32 times
respectively, just after company performed high sales comparing to other financial years. But
in the year 2020-21 it increased to 16.42 times which is the highest in last 5 years.

49
4.1.6 NET PROFIT RATIO

The net profit ratio is a most widely used profitability analyzing tool that depicts the
relationship between a company's net profit after taxes and its net sales revenue. It is calculated
by dividing the net profit after tax by the net sales for the period to determine the amount of
profit earned by an entity for each amount of sales. The income statement or profit and loss
account can provide both of the statistics needed to determine this ratio. The profit margin on
sales is also known as the net profit ratio.

Formula
Net profit ratio= (Net profit after tax/ Net sales)*100

Table 4.10: Net sales and net profit after tax

Year Net Sales Net profit after tax

2016-17 34,487 4490
2017-18 35,218 5237
2018-19 38,224 6036
2019-20 38,785 6738
2020-21 45,996 7954
Source: Annual Report of HUL

Table 4.11: Net profit Ratio

Years Net profit Ratio
2016-17 13.02
2017-18 14.87
2018-19 15.79
2019-20 17.37
2020-21 17.29

50
 4.7 Net profit ratio

20

18 17.37 17.29

15.79
16
14.87

14
13.02

12
Net profit ratio

10

0
2016-17 2017-18 2018-19 2019-20 2020-21
Years

Source: Table 4.11 Graph-4.7

INTERPRETATION
Because of their low debt and low cost of indirect expansion, FMCG companies can have
exceptionally high profit margins. As a result, this is an important consideration to know the
profitability.
In the year 2016-17, the net profit ratio is 13.02 this means the company has ability to perform
better than the year previous years. The higher the net profit ratio, the more profitable the
company is; it indicates greater efficiency in managing, running, financing, and investing. The

51
company has excellent control over both running and non-operating costs. It also demonstrates
a large profit margin that can be used to make required adjustments.

In the year 2017-18, the net profit ratio is 14.87 this indicates that the company has been
performed further better than the previous year, high net profit ratio is a sign of efficiency in
managing, operating, financing and investing activities. The company has complete control
over both running and non-operating expenses. It also demonstrates that there is a lot of profit
available to make the necessary adjustments. It ensures that shareholders will receive
substantial returns on their investment, as well as demonstrating the company's ability to thrive
in a difficult economic environment.

In the year 2018-2019, the net profit ratio is higher than the previous two financial years net
profit ratio, which is 15.79. Higher the net profit ratio better the profitability, it is the sign of
higher efficiency in managing, operating, financing and investing activities. The firm has very
good control on operating and non-operating costs. It also shows huge profit availability to
make necessary appropriations. It certifies that shareholders will get sufficient returns on their
investment.

As could see in the previous years, in the year 2019-20 also the net profit ratio of the firm has
been increased parallel, which is 17.37. And company performed the highest net profit ratio
during last 5 years. This indicates that even the covid-
go down its profitability but the company managed to perform even better than other financial
years.

In the year 2020-21, the net profit ratio of the company touches 17 times and it shows 17.29
exactly. This ratio is lesser than previous years but even better compared to other years other
than 2019-20.

It is seen from the above graph and table that during the year 2017-2021 the net profit ratio was
moving from 13.02 to 17.37. In the year 2016-17 net profit ratio is 13.02 times, in the year
2017-18 it increased to 14.87 times. There was a subsequent increase in the year 2018-19 and
2020-21 to 15.79 times and 17.29 times respectively, just after company performed high sales
comparing to other financial years. In the year 2019-20 it increased to 17.37 times which is the
highest in last 5 years.

52
4.1.7 COMBINED RATIOS ANALYSIS

Table 4.12 Combined ratio

Ratios Years

2016-17 2017-18 2018-19 2019-20 2020-21

Current ratio 1.31 1.29 1.36 1.31 1.26

Acid-test ratio 0.98 1.02 1.07 1.02 1.04

Inventory turnover 14.60 14.93 15.78 14.71 13.59

ratio

Receivables turnover 34.63 33.95 27.11 28.53 34.15

ratio

Working capital 13.50 14.95 13.84 13.32 16.42

turnover ratio

Net profit ratio 13.02 14.87 15.79 17.37 17.29

The green shading indicates the year in which the ratio is higher comparing
to other years.
The red shading indicates the year in which the ratio is lower comparing to
other years.

53
4.2 STATEMENT OF CHANGES IN WORKING CAPITAL

The increase or reduction in the individual elements of current assets and current liabilities is
measured using a statement of changes in working capital. It also displays the working capital's
net increase or decrease over the accounting period. The difference in net working capital from
one accounting period to the next is defined as a change in working capital. When preparing a
statement of changes in working capital, the following important notes should be keep in mind;

1) An increase in current assets and a decrease in current liabilities increases working

capital.
2) A decrease in current assets and an increase in current liabilities decreases working
capital.

Process to prepare Statement of changes in working capital

1) Make a pro forma first. Then, under the title of current assets, identify and input all
current assets. In the following columns, insert the current assets for the base year and
current year.
2) Determine the difference in current assets between the two time periods now.
Depending on the situation, enter the difference in the increase or decrease column.
3) Identify current liabilities and file them under the current liabilities title. Then, in the
appropriate columns, enter the amount of current liabilities for the base year and current
year.
4) Add the prior years and current year's current assets and liabilities together. A and B
represent total current assets and liabilities, respectively.
5) Subtract current liabilities (B) from current assets to calculate working capital for both
the current period and the base period (A).
6) Comparing the difference in working capital between the current and base years is the
next stage.
7) If the current year's working capital is more than the prior year's, subtract the difference.
Add the increase in working capital to the amount given in the appropriate column.
8) Lastly, add both the previous and current years' columns together

54
 4.2.1 STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR
ENDED 31ST MARCH 2017

Table-4.13

2016 2017 Effect on working

( Cr.) ( Cr.) capital
Particulars Increase Decrease
( Cr.) ( Cr.)
Current Assets:
Inventories 2,528 2,362 166
Current Investments 2,461 3,519 1,058
Trade receivables 1,064 928 136
Cash and cash equivalents 635 572 63
Bank balances other than cash and cash equivalents 2,124 1,099 1,025
Other financial assets 253 306 53
Other current assets 487 625 138
Total Current Assets(A) 9,552 9,411

Current Liabilities:
Trade payables 5,498 6,006 508
Other financial liabilities 237 181 56
Other current liabilities 627 628 1
Provisions 290 387 97
Total Current Liabilities(B) 6,652 7,202 1,305 1,996

Net Working capital(C=A-B) 2,900 2,209

Net decrease in working capital 691 691

2,900 2,900 1,996 1,996

INTERPRETATION
When looking at statement of changes in working capital for the year ended march 31 st 2017,
the current assets of the year 2017 has been decreasing from 9,552 Cr. to 9,411 Cr. when
comparing with 2016 and current liabilities for the year 2017 has been increased from 6,652 to
7,202. Here, it is analyzed that, there is a decrease in net working capital for the year 2017
which is from 2,900 Cr. to 2,209 Cr., the variance is 691 Cr. In the year 2017 as found that
trade payable has been increased rapidly comparing to last year that is the reason why current
liabilities have been increased during 2017. During 2017 Bank balance and other cash
equivalents have been decreased 1,025, which is reasoned in decreasing current assets during
the year and effected adversely in working capital.

55
 4.2.2 STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR
ENDED 31ST MARCH 2018

Table-4.14

2017 2018 Effect on working

( Cr.) ( Cr.) capital
Particulars Increase Decrease
( Cr.) ( Cr.)
Current Assets:
Inventories 2,362 2,359 3
Current Investments 3,519 2,855 664
Trade receivables 928 1,147 219
Cash and cash equivalents 572 573 1
Bank balances other than cash and cash equivalents 1,099 2,800 1,701
Other financial assets 306 829 523
Other current assets 625 576 49
Total Current Assets(A) 9,411 11,139

Current Liabilities:
Trade payables 6,006 7,013 1,007
Other financial liabilities 181 203 22
Other current liabilities 628 769 141
Provisions 387 651 264
Total Current Liabilities(B) 7,202 8,636 2,444 2,150

Net Working capital(C=A-B) 2,209 2,503

Net increase in working capital 294 294

2,503 2,503 2,444 2,444

INTERPRETATION
When analyzing statement of changes in working capital for the year ended march 31st 2018,
the current assets of the year 2018 has been increasing from 9,411 Cr. to 11,139 Cr. when
comparing with 2017 and current liabilities for the year 2018 has been increased from 7,202
Cr. to 8,636 Cr. Here, it is analyzed that, there is an increase in net working capital for the year
2018 which is from 2,209 Cr. to 2,503 Cr., the variance is 294 Cr. In the year 2018 as found
that trade payable has been increased comparing to last year that is the reason why current
liabilities have been increased during 2018. During 2018 Bank balance and other cash
equivalents have been increased rapidly by 1,701Cr. Which is reasoned in increasing current
assets during the year and effected favorably in working capital.

56
 4.2.3 STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR
ENDED 31ST MARCH 2019

Table-4.15

2018 2019 Effect on working

( Cr.) ( Cr.) capital
Particulars Increase Decrease
( Cr.) ( Cr.)
Current Assets:
Inventories 2,359 2,422 63
Current Investments 2,855 2,693 162
Trade receivables 1,147 1,673 526
Cash and cash equivalents 573 575 2
Bank balances other than cash and cash equivalents 2,800 3,113 313
Other financial assets 829 542 287
Other current assets 576 356 220
Total Current Assets(A) 11,139 11,374

Current Liabilities:
Trade payables 7,013 7,070 57
Other financial liabilities 203 276 73
Other current liabilities 769 506 263
Provisions 651 501 150
Total Current Liabilities(B) 8,636 8,353 1,317 799

Net Working capital(C=A-B) 2,503 3,021 518

Net increase in working capital 518

3,021 3,021 1,317 1,317

INTERPRETATION
When looking at statement of changes in working capital for the year ended march 31st 2019,
the current assets of the year 2019 has been increasing from 11,139 Cr to 11,374 Cr when
comparing with 2018 and current liabilities for the year 2019 has been decreased from 8,636
Cr to 8,353 Cr. Here, it is analyzed that, there is an increase in net working capital for the year
2019 which is from 2,503 Cr to 3,021 Cr, the variance is 518 Cr. In the year 2019 as found that
trade receivable has been increased by 526 comparing to last year that is the reason why current
assets have been increased during 2019. During 2019 other current liabilities have decreased
slightly by 263 Cr. Which is reasoned in decreasing current liabilities during the year and
effected favorably in working capital.

57
 4.2.4 STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR
ENDED 31ST MARCH 2020
Table-4.16

2019 2020 Effect on working

( Cr.) ( Cr.) capital
Particulars Increase Decrease
( Cr.) ( Cr.)
Current Assets:
Inventories 2,422 2,636 214
Current Investments 2,693 1,248 1,445
Trade receivables 1,673 1,046 627
Cash and cash equivalents 575 3,130 2,555
Bank balances other than cash and cash equivalents 3,113 1,887 1,226
Other financial assets 542 1,410 868
Other current assets 356 551 195
Total Current Assets(A) 11,374 11,908

Current Liabilities:
Trade payables 7,070 7,399 329
Other financial liabilities 276 869 593
Other current liabilities 506 418 88
Provisions 501 418 83
Total Current Liabilities(B) 8,353 9,104 4,003 4,220

Net Working capital(C=A-B) 3,021 2,804

Net decrease in working capital 217 217

3,021 3,021 4,220 4,220

INTERPRETATION
When looking at statement of changes in working capital for the year ended march 31st 2020,
the current assets of the year 2020 has been increasing from 11,374 Cr to 11,908 Cr when
comparing with 2019 and current liabilities for the year 2020 has been increased from 8,353
Cr to 9,104 Cr. Here, it is analyzed that, there is a decrease in net working capital for the year
2020 which is from 3,021 Cr to 2,804 Cr, the variance is 217 Cr. In the year 2020 as found that
cash and cash equivalents has been increased by 2,555 Cr and current investments decreased
by 1,445 Cr comparing to last year that is the reason why current assets have been increased
slightly during 2020. During 2020, trade payables and other financial liabilities have increased
slightly by 329 Cr and 593 Cr respectively. Which is reasoned in increasing current liabilities
during the year and effected unfavorably in working capital.

58
 4.2.5 STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR
ENDED 31ST MARCH 2021
Table-4.17

2020 2021 Effect on working

( Cr.) ( Cr.) capital
Particulars Increase Decrease
( Cr.) ( Cr.)
Current Assets:
Inventories 2,636 3,383 747
Current Investments 1,248 2,683 1,435
Trade receivables 1,046 1,648 602
Cash and cash equivalents 3,130 1,740 1,390
Bank balances other than cash and cash equivalents 1,887 2,581 694
Other financial assets 1,410 1,150 260
Other current assets 551 455 96
Total Current Assets(A) 11,908 13,640

Current Liabilities:
Trade payables 7,399 8,627 1,228
Other financial liabilities 869 1,156 287
Other current liabilities 418 567 149
Provisions 418 491 73
Total Current Liabilities(B) 9,104 10,841 3,478 3,483

Net Working capital(C=A-B) 2,804 2,799

Net decrease in working capital 5 5

2,804 2,804 3,483 3,483

INTERPRETATION
When analyzing statement of changes in working capital for the year ended march 31st 2021,
the current assets of the year 2021 has been increasing from 11,908 Cr to 13,640 Cr when
comparing with 2020 and current liabilities for the year 2021 has been increased from 9,104
Cr to 10,841 Cr. Here, it is analyzed that, there is slightly a decrease in net working capital for
the year 2020 which is from 2,804 Cr to 2,799 Cr, the variance is only 5 Cr. In the year 2021
as found that current investments has been increased by 1,445 Cr and Cash and cash equivalents
decreased by 1,390 Cr comparing to last year that is the reason why current assets have been
increased during 2021. During 2021, trade payables and other financial liabilities have
increased by 1,228 Cr and 287 Cr respectively. Which is reasoned in increasing current
liabilities during the year and effected unfavorably in working capital.

59
4.2.6 FINAL SUMMARY OF STATEMENT OF CHANGES IN WORKING CAPITAL

The current assets of the year 2017 have been decreasing from 9,552 Cr to 9,411 Cr
when distinguish with 2016 and current liabilities for the year 2017 increased from
6,652 Cr to 7,202 Cr. It is found that there is a decrease in net working capital for the
year 2017 (691 Cr).
The current assets of the year 2018 has been increased from 9,411 C. to 11,139 Cr when
comparing with 2017 and current liabilities for the year 2018 increased from 7,202 Cr
to 8,636 Cr as well. It indicates in an increase in net working capital for the year 2018
(294 Cr).
There is a slight increase in current assets of the year 2019 from 11,139 Cr to 11,374
Cr when comparing with 2018 and
prior year. As a result, the year's net working capital has increased by 518 Cr.
The current assets of the year 2020 have been increasing from 11,374 Cr to 11,908 Cr.
When comparing with current liabilities of 8,353 Cr in 2019, in the year 2020 is 9,104
Cr. It shows that there is a decrease in net working capital for the year 2020, which is
217 Cr.
The current assets of the year 2021 have been increasing from 11,908 Cr to 13,640 Cr
comparing with 2020 and current liabilities of the year 2021 have been increased from
9,104 Cr to 10,841 Cr. It represents in a slightly decrease in net working capital for the
year 2021, which is 5 Cr.

60
 CHAPTER V-FINDINGS, CONCLUSIONS &RECOMMENDATIONS

5.1 FINDINGS

During the study period, Hindustan Unilever Limited's current ratio (CR) fluctuated
between 1.29 and 1.36. This is far less than the desired or ideal current ratio of 2:1.
The Acid-test ratio has moved in between 0.98 to 1.07, during the period of study. The
Company's Acid-test ratio for 5 years is more than the ideal ratio of 1:1. The Acid-test
ratio for the year 2016-17 is less than the ideal ratio of 1:1.
The inventory turnover ratio and days on hand indicate the highest trend in the last five
years. Inventory turnover ratio has moved between 13.59 and 15.78.
The receivables turnover ratio is acceptable. The receivables turnover ratio has moved
in between 27.11 to 33.63. Overall, in terms of receivables turnover ratio and days,
Company performed really well despite of slight variation in ratios in couple of years.
But analyzes a decreasing tend from 2019-20 financial years in receivables turnover
ratio.
It is founded that during the year 2017-2021 the working capital turnover ratio was
moving from 13.32 to 16.42. In the year 2016-17 working capital turnover ratio is 13.5
times, in the year 2017-18 it increased to 14.95 times. There was a subsequent decrease
in the year 2018-19 and 2019-20 to 13.84 times and 13.32 times respectively, just after
company performed high sales comparing to other financial years. But in the year 2020-
21 it increased to 16.42 times which is the highest in last 5 years.
The net profit ratio of the company is also satisfactory. It moved from 13.02 to 17.37
and also it shows an increasing trend from last 5 years study period.
Based on an examination of Hindustan Unilever Limited's financial statements, it is
founded that the company's overall operating stability and profitability have improved
over time, and that its overall working capital performance will improve in the next
years.
The study founded that company in good liquidity position, but still the current ratio
has not touched the ideal ratio of 2:1, if company can improve that also, it would be
better in position in terms of liquidity.

61
 Net working capital of Hindustan Unilever limited , also in a decreasing trend, but still
e result indicates that
the company has satisfied current assets and cash after paying its current liabilities.
The study found that, if the company can increase net working capital, they would have
a competitive edge in FMCG industry.
Finally, the study found that overall working capital management of Hindustan
Unilever Limited in the positive indent the company is managing their working capital
in well manner despite of small variation due to Covid-19 pandemic situation.

5.2 RECOMMENDATIONS

Hindustan Unilever Limited should invest more in current assets to enhance its liquidity
position. To close the gap between the existing and ideal ratios of 2:1. To maintain a high level
of liquidity for forthcoming years, the company must maintain an acceptable level of working
capital. The company should do control over variable costs and seek for ways to lower its
manufacturing costs, allowing the company to boost its profitability.

Excessive working capital reduces profitability, whereas insufficient working capital risks a
company's solvency. Hindustan Unilever should keep track of the inventory as efficiently as
possible. To prevent unnecessarily freezing funds in surplus inventory, the HUL should adhere
to economic order quantities.

Hindustan Unilever Limited should focus their debtors to convert accounts receivables period

of years.

d
solvency without being effect adversely.

62
5.3 CONCLUSION

profitability, and liquidity situation using Ratio analysis and Statement of Changes in Working
Capital, over the last five years, from financial year 2016-17 to 2020-21. This research found
several points on Hindustan Unilever Limited's working capital management. The company
has been profitable for the past five years, and it has also fared well in terms of liquidity.

Working capital management is one of the most important aspects of financial management.
The finance manager must devote a significant amount of time to ensuring that the company's
working capital is optimal. A large amount of money that has been invested and received can
now be released to the alternate user. Finally, the company's liquidity and profitability will be
boosted. With better working capital management, the industry's problems of underutilization
of capacities will be remedied to a greater extent. The organization should take a balanced
approach to financing permanent current assets with long-term sources of finance and
temporary current assets with short-term sources of finance.

The study here by conclude that, based on an examination of Hindustan Unilever Limited's
financial statements, it is concluded that the company's overall operating stability and
performance have improved over time, and that its overall financial performance will improve
in the coming years.

63
 ANNEXURE

BALANCESHEET OF HUL FOR THE YEAR 2017, 2018 & 2019

Particulars 2017 2018 2019

(Amounts) (Amounts) (Amounts)

ASSETS
Non-current assets:
Property, plant and equipment 3,654 3,776 3,097
Capital work-in-progress 203 430 373
Goodwill 0 0 36
Other intangible assets 370 366 400
Investments in subsidiaries, associates 254 254 254
and joint venture

Financial assets:
Investments 6 2 2
Loans 198 404 396
Other financial assets 114 6 11
Non-current tax assets (net) 311 439 619
Deferred tax assets (net) 160 255 339
Other non-current assets 70 78 154
Current assets :
Inventories 2,362 2,359 2,422
Financial assets:
Investments 3,519 2,855 2,693
Trade receivables 938 1,147 1,673
Cash and cash equivalents 572 573 575
Bank balances other than cash and 1,099 2,800 3,113
cash equivalents mentioned above

Other financial assets 306 829 542

Other current assets 553 560 352

64
Assets held for sale 72 16 4
TOTAL ASSETS 14,751 17,149 17,865

EQUITY AND LIABILITIES

Equity share capital 216 216 216
Other equity 6,274 6,859 7,443
Liabilities
Non-current liabilities:
Financial liabilities:
Other financial liabilities 71 115 173
Provisions 485 772 1,049
Non-current tax liabilities (net) 296 384 444
Other non-current liabilities 207 167 187
Current liabilities:
Financial liabilities:
Trade payables:
Dues to micro and small enterprises 0 0 0
Dues to Others 6,006 7,013 7,070
Other financial liabilities 181 203 276
Other current liabilities 628 769 506
Provisions 387 651 501
TOTAL EQUITY AND 14,751 17,149 17,865
LIABILITIES

65
BALANCESHEET OF HUL FOR THE YEAR 2020 &2021

( s)

Particulars 2020 2021

(Amounts) (Amounts)

ASSETS
Non-current assets:
Property, plant and equipment 4,625 5,786
Capital work-in-progress 513 623
Goodwill 36 17,316
Other intangible assets 395
Investments in subsidiaries, associates 250 310
and joint venture

Financial assets:
Investments 2 2
Loans 453 520
Other financial assets 3 613
Non-current tax assets (net) 1,016 1,200
Deferred tax assets (net) 261 0
Other non-current assets 140 181
Current assets :
Inventories 2,636 3,383
Financial assets:
Investments 1,248 2,683
Trade receivables 1,046 1,648
Cash and cash equivalents 3,130 1,740
Bank balances other than cash and 1,887 2,581
cash equivalents mentioned above

Other financial assets 1,410 1,150

Other current assets 533 438

66
Assets held for sale 18 17
TOTAL ASSETS 19,602 68,116

EQUITY AND LIABILITIES

Equity share capital 216 235
Other equity 7,815 47,199
Liabilities
Non-current liabilities:
Financial liabilities:
Other financial liabilities 853 945
Provisions 1,198 1,551
Non-current tax liabilities (net) 416 1,359
Other non-current liabilities 5,986
Current liabilities:
Financial liabilities:
Trade payables:
Dues to micro and small enterprises 0 64
Dues to Others 7,399 8,563
Other financial liabilities 869 1,156
Other current liabilities 418 567
Provisions 418 491
TOTAL EQUITY AND 19,602 68,116
LIABILITIES

67
 PROFIT AND LOSS A/C OF HUL FOR THE YEAR 2017, 2018 & 2019

Particulars 2017 2018 2019

(Amounts) (Amounts) (Amounts)

INCOME

Revenue from operations 34,487 35,218 38,224

Other income 526 569 664

TOTAL INCOME 35,013 35,787 38,888

EXPENSES

Cost of materials consumed 11,363 12,491 13,240

Purchases of stock-in-trade 4,166 3,812 4,708
Changes in inventories of finished goods 156 (71) 12
(including stock-in-trade) and work-in-progress
Excise duty 2,597 693 0
Finance costs 1,620 1,745 1,747
Employee benefits expenses 22 20 28

Depreciation and amortization expenses 396 478 524

Other expenses 8,538 9,272 9,800
TOTAL EXPENSES 28,858 28,440 30,139
Profit before exceptional items and tax 6,155 7,347 8,749
Exceptional items 241 (62) (227)
Profit before tax 6,396 7,285 8,522
Tax expenses:
Current tax (1,865) (2,148) (2,565)
Deferred tax credit/(charge) (61) 100 79
PROFIT FOR THE YEAR (A) 4,490 5,237 6 ,036

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PROFIT AND LOSS A/C OF HUL FOR THE YEAR 2020 & 2021

Particulars 2020 2021

(Amounts) (Amounts)

INCOME

Revenue from operations 38,785 46,996

Other income 733 513

TOTAL INCOME 39,518 46,509

EXPENSES

Cost of materials consumed 11,572 14,951

Purchases of stock-in-trade 6,342 7,117
Changes in inventories of finished goods (121) (391)
(including stock-in-trade) and work-in-progress
Finance costs 106 108
Employee benefits expenses 1,691 2,229

Depreciation and amortization expenses 938 1,012

Other expenses 9,701 10,766
TOTAL EXPENSES 30,229 35,792
Profit before exceptional items and tax 9,289 10,717
Exceptional items (197) (227)
Profit before tax 9,092 10,490
Tax expenses:
Current tax (2,202) (2,458)
Deferred tax credit/(charge) (152) (78)
PROFIT FOR THE YEAR (A) 7,954 6,738

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 BIBLIOGRAPHY

BOOKS
Arora M N (2012)

Wiley CMA Review (2020)

Miles CMA Review (2020)

JOURNALS

Anna Maria Talonpoika, Timo Karri, Miia Pirttila and Sari Monto (2016).
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Annual report of Hindustan Unilever Limited 2016 2021.

Research in International Business and Finance, 2014, vol. 31, issue C, 1-16.

Management; Bhubaneswar Vol. 10, Iss. 1.

national Research Journal of Business

Studies, 11(1).

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and its Impact on

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 - It's
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Sushma Vishnani and Bhupesh Kr. Shah (2007). Impact of Working Capital Management
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WEBSITES
http://www.hul.co.in
https://www.investopedia.com
https://scholar.google.com/
https:/learn.financestrategists.com
https://www.accountingtools.com

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