CHAPTER – 3

RESEARCH METHODOLOGY

INTRODUCTION:
3.1 INTRODUCTION
3.2 STATEMENT OF PROBLEM
3.3 REVIEW OF LITERATURE
3.4 OBJECTIVES OF THE STUDY
3.5 SAMPLE DESIGN
3.6 PERIOD OF THE STUDY
3.7 DATA COLLECTION
3.8 SCOPE OF THE STUDY
3.9 SIGNIFICANCE OF THE STUDY
3.10 HYPOTHESIS OF THE STUDY
3.11 TOOLS OF ANALYSIS
3.12 CHAPTER PLAN
3.13 LIMITATIONS OF THE STUDY
3.14 REFERENCES

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3.1 INTRODUCTION:
Research in common parlance refers to a search for knowledge. Research simply
put is an endeavor to discover answers to problems through the application of
scientific methods to the knowable universe. “Research is essentially a
systematic enquiry, seeking facts through objective verifiable methods in order
to discover the relationship among them, and to deduce broad principles or laws
from them.” It is really a method of critical thinking.

“What you measure is what you get”. Senior executives understand that their
organization’s measurement system strongly affects the behaviour of managers
and employees. Before 1980s, organizations were using accounting as a basis for
the planning and control of organization activity as well as the measurement of
performance. The various uses of accounting as a basis for the measurement of
past performance, the control of present performance and the planning of future
performance bind the whole organization throughout time into unified whole.
Thus, accounting, when used traditionally, considers solely the organization
itself and the effects of that organization’s action only upon itself, rather than
recognizing any interaction between the organization and its environment.
Accounting information inevitably has a role to play in the evaluation of
performance but Govinderajan (1984) suggests that a strong fit between
environment uncertainty and performance evaluation style is associated with
higher business unit performance.

Business cannot exist without profit and economy cannot exist without sound
business. Profit is the main motto behind the establishment of a business. It is
the engine that drives the business enterprise. Basically profit is the primary
motivating force for all economic activities and the report card of the past
Service motive is the secondary function of an enterprise. Thus, profit is the soul
of the business without which a business becomes dull and lifeless. "In fact profit
is useful intermediate beacon towards which a firm’s capital should be
directed."1 No Company can exist/survive longer without profit for profit is the
ultimate measure of its effectiveness and in a capitalist society, there is no future
for a private enterprise which always incurs losses. The crucial measure of the

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effective performance of a business is profit which really is a measure of how
well a business performs economically. "If an enterprise fails to make profit,
capital invested is eroded and if this situation prolongs, the enterprise ultimately
cease to exist.”2 Explaining the importance of profit to different Parties Weston
and Brigham pointed out that, "To the financial management, profit is the test of
efficiency and a measure of control, to the owners; a measure of the worth of
their investment, to the creditors, the margin of safety, to the government a
measure of taxable capacity and basis of legislative action; and the country, profit
is an index of economic progress, national income generated and rise in the
standard of living.”3 On the other hand, profit is a signal for the allocation of
resources and a yardstick for judging the managerial efficiency.

Social scientists grapple with numerous problems of day to day life. The
complexity of problems of present day society makes it imperative for the social
scientists to pursue a reliable course if action or a scientifically devised
procedure of inquiry. Value free research or social inquiry without bias is the
need of the twentieth century’s social sciences. Our search for definition of
methodology would require us to know the nature of the course pursued by
research scholars in social sciences. “The procedures by which researchers go
about their work of describing, explaining and predicting phenomena are called
methodology.”

3.2 STATEMENT OF PROBLEM:

The FMCG industry has emerged as one of the largest sectors in the Indian
economy by registering an astonishing double-digit growth rate in sales in the
past couple of years. is the fourth largest sector in the economy and it is an
important contributor to India’s GDP which creates employment for more than
three million people in downstream activities. FMCG products are of relatively
low cost than any other products and they offer a quick turnover to the
manufacturer. FMCG is probably, a typical case of low margin and high volume
business. FMCG generally includes a wide range of frequently purchased
consumer products, its principal constituents are Household Care, Personal Care
and Food & Beverages. The total F.M.C.G. market is in excess of Rs. 85,000 Crores.

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It is currently growing at double digit growth rate and is expected to maintain a
high growth rate. FMCG Industry is characterized by a well-established
distribution network, low penetration levels, low operating cost, lower per capita
consumption and intense competition between the organized and unorganized
segments. This sector will grow, though it may not be smooth growth path, due
to the present world-wide economic slowdown, rising inflation and fall of the
rupee. Thus this sector expected to grow to a USD (United States Dollar) 33
billion industries by 2015 and to a whooping USD 100 billion by the year 2025.

The food processing industry in India has gained in popularity over last ten
years, mainly because of changing lifestyles and eating food processing habits of
people. Most of the people’s lifestyle in food industry is trendily increasing. The
present study is focusing on top ten FMCG companies of India to analyze the
financial soundness of the companies using various required tools.

The title of the problem is

“Analysis of Financial Indicators of Selected FMCG

Companies of India”

3.3 REVIEW OF LITERATURE:

Before stepping into the empirical study, a quick look through the existing
literature on the financial performance of FMCG companies seems desirable.
They are many numbers of studies in this perspective but they are in different
period and in different sectors. The following paragraphs provide very brief
explanation of some significant studies so far carried out in India on the issue:

 Mallik and Sur (1999) examined the working capital management of

Hindustan Lever Ltd., a well-known FMCG company, during the period
1987-1996 using relevant statistical techniques and tests. The results
reveal a very high degree of positive relationship between liquidity and
profitability.

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 Sahu (2002) found that liquidity plays a significant role in the successful
functioning of a firm. Illiquidity threatens the very survival of the firm and
leads to business failure. On the contrary, a very high degree of liquidity
hampers the profitability. He observed that most of the paper producing
companies in India has been caught in a vicious down cycle and facing a
threat to their viability.

 Ghosh and Maji (2003) attempted to examine the efficiency of working

capital management of Indian cement companies during 1993 to 2002.
They calculated three index values-performance index, utilization index
and overall efficiency index to measure the efficiency of working capital
management, instead of using working capital management ratios. By
using regression analysis and industry norms as a target efficiency level of
individual firms, they tested the speed of achieving target level of
efficiency by individual firms during the period of study and found that
some of the sample firms successfully improved efficiency during these
years.

 Kumari (2003) the researcher found that in terms of deposit

mobilization branch expansion credit deployment and employment
generation both public and private sector banks have shown increasing
trend. Banks wise analysis revealed that private sector banks have shown
higher growth as compared to public sector banks. The researcher
suggested that public sector banks should their profitability and
productivity performance by adopting innovation modern technological
changes and by fixing responsibility of officers for recovery etc.

 Dr Sanjay Bhayani (2003) published a book, “Practical financial

statement analysis” The study covered 16 public limited cement
companies in private sector. He made study of analysis of profitability,
working capital, capital structure and activity of Indian cement industry.
In his research he revealed various problems of cement industries and
suggested remedies for the problems .He also suggested for the
improvement of profitability and techniques of cost control.

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 Singh (2006) has studied about the performance of sugar mills in Uttar
Pradesh by ownership, size and location. He has mentioned that in his
paper performance assessment of the sugar industry and setting targets
for the relatively inefficient mill to improve their efficiency and
productivity is crucial, as the interests of various stakeholders are largely
dependent on its performance. On the base of analysis he has found that
the performance of the mills was differ significantly across sector, plant
size and region and the 39 private sector mills achieved the highest
efficiency scores, followed by the cooperative sector. He has also been
observed that the mills with bigger plant size attain relatively higher
efficiency scores, moreover, the mills located in the WK found better
performer as compared to their counter parts of other regions. Labour
and energy inputs are found highly underutilized in almost all the
inefficient mills.

 Sur, D., Chakraborty, K. and Das, S. (2007) studied the case of Colgate-
Palmolive (India) Ltd., a leading FMCG company in the Indian healthcare
industry, for the period 1980-2004 using simple statistical tools like
arithmetic mean, techniques like ratio analysis, analysis of Kendall's
coefficient of concordance, multiple regression analysis and multiple
correlation analysis and statistical tests like t-test, F test and chi-square
test at appropriate places to analyze the efficiency of the company's asset
management. The results reveal that the company failed to adapt itself to
the challenging and competitive environment by lowering the efficiency
of its asset management during the post-liberalization era.

 Samuel & Vanniarajan (2007) discussed about financial performance of

bank by applying Du-Pont analysis. They concluded that the liberalization
of the finance sector in India has divulged Indian banks to a new economic
environment that is considered by increased competition and new
regulatory requirements. They also revealed that Indian and foreign
banks need to explore development opportunities in India by initiating
new products for different customer segment, and many of which were
not conservatively viewed as customer for the banking industry. They

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 suggested all banks should to evaluate their performance and compare
with the others. In the last they depicted from the analysis the
performance of the banks may be viewed on the base of three dimensions
like structural, functioning and efficiency factors which was suggested by
the India Bank Association.

 Janardhan Rao (2007), The broad objective of the study is to examine

the existing level of Working Capital Management in the selected units it
is proposed to make a cross examination of the utility of having expertise
managerial know – how with that of not having such know – how. Major
topics are performance of the selected unit’s management of inventory
management of cash management of account receivables.

 Sathyamoorthi and Wally-Dima (2008) analysed the working capital

management of retail domestic companies that are listed on Botswana
stock exchange. The research findings reveal that the listed companies
adopted a conservative approach in the management of their working
capital and suggest that the working capital is not static overtime but
varies with the changes in the state of economy.

 Pradeep (2008) attempted to analyse the size and composition of

working capital. It also tries to examine as to what proportion of current
assets has been financed by long term sources. The study tries to evaluate
the effect of size of inventory and impact of working capital through
inventory ratios, working capital ratios, and trends, computation of
inventory and working capital, and liquidity ranking. It was found that the
size of inventory directly affects working capital and its management. Size
of inventory and working capital management of Indian Farmers and
Fertilizer Cooperative Limited is properly managed and controlled as
compared to National Fertilizers Ltd (NFL).

 Karamjet singh and firew chekol (2009), it is focused on assets and

liabilities that may affect free cash flow and the cost of capital financing in
the company. The small scale industries can choose one of the three
working capital investing and financing policies which are mentioned in

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 most financial management Aggressive policy where by a major portion of
the company’s fixed demand assets is satisfied with short term financing.
Conservative policy where by both fixed assets and volatile levels of
current assets are maintained with long term financing. This policy relies
heavily on long term financing and therefore, the firm has less risk of
facing the problem of shortage of funds. Moderate (matching) policy
(hedging approach) aiming to adjust the period when financing is needed
to the period when the company requires given assets. As a result of such
approach, fixed portion of current assets is financed with long tern funds
while the volatile portion of these assets is financed with short tern funds.

 Sonia (2009), in this study, Due to Globalization world became a small

village it provides several things to several people with removal of all
trade barriers among countries. Globalizations involve three stages –
Trade in goods and services, Movement of capital and flow of finance. In
India Globalization mean ‘integrating’ the economy of the Country with
the world economy. In this content small scale sector is a vital scale sector
is a vital constituent of overall industrial sector of the country. Its
contribution in production export and employment is very crucial. The
main objective of researcher is to evaluate the performance of small scale
industries before and after liberalization and compare them with average
annual growth rate and to know the impact of Globalization on the
performance of small scale industries.

 Bhunia, (2010), identified that the liquidity position in both the

companies was strong, therefore, it reflects the ability of the companies to
pay short-term obligations within due date. It was also observed that the
companies relied more on external funds in terms of long-term
borrowings thereby providing a lower degree of protection to the
creditors.

 Patel Vivek (2010) indicated in his study on „Financial Performance of

Tata motors‟ that the company has issued equity capital rather than going
for preference share which means the company’s dividend will not be

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 fixed but the company has provided a good amount of dividend to share
holders. Despite of having large reserves, company has opted for loan
funds. The company had a good operating income which shows that the
company has a sustainable growth.

 Reddy, G.S. (2010) studied the impact of dividends announcement on

stock price of the selected FMCG companies. With the use of convenience
sampling, the researcher selected four companies such as ITC Ltd, Godrej
Consumer Products Ltd., Procter & Gamble and HUL. The data required
for the study was obtained from the BSE and NSE websites and company
websites for a period of five years starting from 2002-03and ending with
2006-07. The study was exploratory in nature. The collected data was
analyzed with the help of statistical tools – trend analysis, moving average
and correlation. The study concluded that as a whole the FMCG industry
showed the increasing trend in the stock prices after the declaration of
dividend according to trend analysis.

 Jasmin kaur (2010) the present study indicates that working capital is
one of the most importance and challenging factors for financial
management. Working Capital Management is related with the problems
that arise in attempting to manage the current assets, current liabilities
and the interrelation that exists between them. Efficient management of
working capital and its components have a direct effect on the
profitability levels of tyre industry.

 David Mathuva (2010), the study focuses the impact of Working Capital
Management components of corporate profitability. There exists a highly
significant negative relationship between the times taken by the firms to
collect cash from their costumers secondly there exists a highly
significance positive relationship between the period taken to convert
inventories into sales. Thirdly there exists a highly significance positive
relationship between the time to pay its creditor the more profitable it is.

 Peswani Shilpa (2011) examining the impact of leverage capital

structure of a firm on its financial performance with reference to two

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 market leading FMCG companies in Indai. The study is highly focused on
two companies Britania Industries Ltd. and Marico Industries Limited.
Researcher observed that both the firms are obtaining finance from
different sources for their expansion project but Britania Industries
Limited bank on promoter’s fund in such projects, while Marico industries
depend upon debts. Though, both the firms are leveraged differently, the
profitability is remaining more or less same. As sales performance of both
the companies has been almost same with Compounded Average Growth
Rate. Though the solvency ratio of Marico is low due to high leverage, but
its return on equity shareholder’s fund is higher as to Britania due to
benefit of tax credit. The study concluded that profitability of the
company is not entirely depend upon source of financing, but in the study
it also highly influenced by top level management initiatives, but the
universal acceptable phrase “a high leveraged firm gives better return to
the equity shareholders as to low leveraged firm is established in the
study”. The study depicts that merger and acquisition in the fast moving
consumer goods company is the benchmark policy for expansion of
market, which directly impact profitability of the firm, but it is highly
depend upon source of finance for such merger and acquisition as well as
repayment schedule determined by the financial Executives of the firm.
However, study has not considered special features of the FMCG
companies which highly affect profitability of the firm like small life span
of the product, huge brand building cost and other aspects.

 According to Anusha Agrawal (2011), The Working Capital

Management approach to liquidity management has long been the
prominent technique to plan and control liquidity. Efficient liquidity
profitability management involves planning and controlling current
assets and current liabilities in such a manner that eliminates the risk of
the inability to meet due inability to meet due short term obligation on
the one hand and avoids excessive investment in these assets on the
other. The Working Capital includes all the items shown on a company’s
balance sheet as short term or current assets while net working capital

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 excludes current liabilities this research paper measures the profitability
liquidity and risk trade – off of automobile industry. Working Capital is
like blood to human body. It is the most vital ingredient of the business.
Working Capital refers to the industries investment in the short term
assets.

 Ashok Sharma and kumar (2011), the main aim of this article is to
examine the effect of Working Capital on profitability of Indian firms. The
finding of researcher shows significantly depart from the various
international markets. The result show that Working Capital Management
and profitability in positively correlated in Indian companies Research
also shows that the inventory of number of day and number of days
account. Payment is negatively whereas number of days accounts
receivable and cash conversion period a positive relationship with
corporate profitability.

 Jayshri kadam (2011), Small Scale Industries encompasses vast scope

covering manufacturing servicing, financing construction infrastructure
etc. Small Scale Industries is an importance for economic growth in any
countr.it is more significance to developing country like India. It
contributing its increasing share to be national production employment
and export Small Scale Industries is also infection by the problems of raw
materials, finance, marketing underutilization of capacity and ignorance
of management of working capital, lack of finance has driven many small
business units into bankruptcy.

 Dr. S.K. khartik titto Varghese, (2011) they found the profitability more
or less depends upon the better utilization of resources and to manpower.
It is worthwhile to increase production capacity and use advance
technology to cut down cost of production and wage cost in order to
increase profitability, not only against the investment, but also for
investor’s return points of view.

 Marimuthu (2012) revealed that that the sample companies having good
performance in the current and quick ratio except interest coverage ratio.

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 It was concluded that the companies should concentrate on their liquidity
position, receivables, and payables particularly on working capital.

 Bagchi et al. (2012) in their study attempted to explore the effects of

components of working capital management of selected FMCG firms on
their profitability. Using secondary data from Prowess database of CMIE
for a period of 10 years from 2000-01 to 2009-10, the study concludes
that there is negative association between working capital management
variables and firm's profitability during the study period.

 Sudesh Kumar, Dr.Bimal Anjum,Dr. Suman Nayyar (2012) conducted

a study on Financing Decisions: A Study Of Pharmaceutical Companies Of
India, the study reveals the various patterns of capital structure of the
selected pharmaceutical companies. The study also throws light on the
relationship of change in capital structure with the company’s investment
policy.

 Dr. Shailesh N. Ransariya (2013) has analyze financial performance of

FMCG companies. The aim of this research paper is to analyze the
profitability and liquidity performance of the FMCG companies by using
ratio analysis. The secondary data of the selected units was used for the
period 2007-08 to 2011-12 for five FMCG companies viz., Colgate-
Palmolive Ltd., Dabur India Ltd., Godrej Consumer Product Ltd., Britannia
Ltd. and Navneet Publications Ltd. For the data analysis and testing of
hypothesis, ANOVA is used to check the significance of differences in the
financial performance of selected units during the study period.

 Ranjit Kumar Paswan (2013) conducted a study on Analysis of Solvency

of Selected FMCG Companies in India to analyze the liquidity position of
selected FMCG companies and to understand the company’s capacity to
repay the short-term debt as well as long-term debt. The study reveals
that among the companies under study, the Debtors Turnover Ratio of
Nestle and Colgate show the efficiency of debt management.

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 Dr Pratibha Jain & Prof. Megha Mehta (2013) In their study on
financial performance of automobile companies finds that Hero Honda
company performed well because of its usage of latest technology and
Tata motors weak performance due to increased manufacturing
overheads and company’s inability to face competition.

 Gurmeet Singh (2014) conducted a study on Interrelation Between

Capital Structure And Profitability Of FMCG Companies of India. The study
reveals that the profitability of the firm and its financial leverage has an
insignificant impact on the capital structure of the studied firms during
the examined period. The study is unable to establish any significant
relation between profitability and financial leverage effect on the capital
structure of a firm.

 Usman Dawood (2014) in his research paper on Factors influencing

profitability of commercial banks believe that there no relationship
between the cost efficiency and profitability but observes that capital
adequacy and deposits do support in profitability where as size of the
bank doesn’t help in profitability.

 Aartigarg (2015), “Profitability Analysis of FMCG Sector”, the study was

based on the objective, to analyse the comparative profitability of
companies selected through ratio analysis and ANOVA and also to reveal
that profitability of Colgate Palmolive, Dabur and Marico was satisfactory
in some aspects and of Britannia and Godrej not satisfactory in certain
aspects. Therefore the companies should put more effort to strive for
improved productivity and optimal utilization of available resources.
Profitability in long run contributes to sustained growth of the company.

 Dr. Shailesh N. Ransariya (2015) made an attempt to analyze the

profitability performance of top 5 BSE index companies. The purpose of
this research paper is to analyze the profitability performance of the BSE
index companies, expressed in terms operating profit, gross profit, net
profit, return on capital employed, return on net worth as the key
financial indicators. The secondary data of the selected units was used for

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 the period 2008-09 to 2012-13 for five BSE Index companies viz., ONGC
Ltd., TCS Ltd., Reliance Industry Ltd., ITC Ltd. and Coal India Ltd. These
are considered as the representatives of the industry due to high market
share. For the data analysis and testing of hypothesis, ANOVA is used to
check the significance of differences in the profitability performance of
selected units during the study period. The results suggest that the
profitability performance of ITC Ltd. is very good than the other selected
units. But there is no significant difference in profitability performance of
the selected units during the study period.

 Dr. M. Thyigarajan and Mr J. Uday Kumar (2015) in their paper

“Profitability analysis of select aluminium companies in India” the main
objective of this research paper is to analyze the profitability position of
the selected aluminium companies for 10 years (2005-2014). The study
based on the secondary data, the tools used for analysis are Mean,
Standard deviation, co-efficient of variation and compound annual
growth. The study ascertains the National Aluminium Company Limited
shows satisfactory performance in concern with profitability.

 Dr.T. Srinivasan Dr.M.Thiru Narayanasamy (2015) in their study has

found that better utilization of the resource can lead for enhance
profitability of the organization apart from customer satisfaction through
quality service, cutting off expenses etc. clear that profitability.

 Dhanabhakyam and Saroja (2016), “Financial performance of select

FMCG companies using ‘z’ score model”, the study was based on the
objective, to analyse the performance of FMCG company in India and
predict the solvency of model which is based on discriminate analysis. It
also proposes to identify the company’s financial indicators like working
capital management, retained earnings, BIT and total assets would be
used. The trends will help the company and initiate steps to avoid
financial distress and bankruptcy. Therefore the study of financial ratios
and observing trends will help the management in evaluating the
performance of the company.

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  Dr. Amit Kumar Singh, Preeti Bansal (2016) conducted a study on
Impact of Financial Leverage on Firm’s Performance and Valuation: a
Panel Data Analysis. To assess empirically (from 2007 to 2016) the
impact of financial leverage on the performance and valuation of firms in
the selected 58 BSE FMCG firms that constitute the S&P BSE FMCG Index.
The results showed that financial leverage has significant and negative
impact on performance and valuation when firm's financial performance
indicators are ROA and EVA and valuation indicator is Tobin’s Q. Out of
the control variables, R&D spending, size, growth in sales and WACC
significantly impact the firm's performance and valuation. Remaining
control variables like tangibility and profitability are found to have
insignificant impact on firm's financial performance and valuation.

3.4 OBJECTIVES OF THE STUDY:

Keeping in view the importance of FMCG companies in India’s economic and
social development, the study generally aims at evaluating the financial
performance of the top ten leading FMCG companies, over a period of 10 years
(2007-08 to 2016-17). The specific objectives of the study are:
1) To review the growth and development of FMCG in India
2) To examine the profitability performance of the selected FMCG units
3) To evaluate the liquidity performance of the selected FMCG units
4) To examine the leverage performance of the selected FMCG units
5) To compare these financial parameters within the selected sample units
6) To make suggestions regarding financial performance

3.5 SAMPLE DESIGN:

There are many companies which manufacture Fast Moving Consumer Goods. In
this research study, researcher has selected 10 FMCG Companies which are listed
in Indian Stock Exchange, this sample units have been selected with the
consideration of total market capitalization.
Table No. 3.1 List Of Selected Companies
Sr. No. Name of the company
1 Imperial Tobacco Company Ltd. (ITC)

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 2 Hindustan Unilever Ltd (HUL).
3 Britannia Industries Ltd. (BIL)
4 Nestle India Ltd. (NIL)
5 Dabur India Ltd. (DIL)
6 Marico Ltd. (ML)
7 Godrej Consumer Products Ltd. (GCPL)
8 Glaxosmithkline Consumer Healthcare Ltd. (GCHL)
9 Colgate-Palmolive (India) Ltd. (CPIL)
10 Procter & Gamble Hygiene & Health Care Ltd. (P & G)

3.6 PERIOD OF THE STUDY:

The core objective of the present study is to analyze financial performance of top
ten FMCG companies during the study period of 2007-08 to 2016-17. Total study
period is ten years from 2007-08 to 2016-17.

3.7 DATA COLLECTION:

The source of data for this study was predominantly from secondary sources. i.e.
study is mainly based on the secondary data taken from the annual reports of
selected units and Accord data base website (www.acekp.in). And all the data
relating to history, growth and development of Industries have been collected
mainly from the books and magazine relating to the industry and published
paper, report, article and from the various news papers, bulletins and other
various research reports published by industry and research organization and
websites of the selected units. The data relating to the selected units under study
have been obtained from prospectus, pamphlets and annual reports of the
selected units.

3.8 SCOPE OF THE STUDY:

The core objective of the present study is to analyze financial performance of
selected FMCG companies during the study period of 2007-08 to 2016-17. The
financial performance can be analyzed by profitability ratios, liquidity ratios and
leverage related ratios. The hypotheses have been tested by ANOVA test.

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3.9 SIGNIFICANCE OF THE STUDY: -
A) Contribution to the knowledge: -
- Through this study my knowledge particularly regarding
various ratios will be improved.
- Through this study my knowledge particularly regarding
various statistical tools and techniques and statistical tests is
improved.
- Analytical power of researcher will be improved.
B) Contribution to the society: -
- Through this research society will be able to know the real
situation of the liquidity and profitability position, of selected
units during the study period.
- Through this study creditors and other parties can take proper
decision.
- Employees will be able to take proper decision regarding job
(work).
C) Contribution to the Industry: -
- Industry may be able to maintain their Liquidity and
Profitability position during the study period.
- Industry may be able to know the real situation of management
control system.

3.10 HYPOTHESIS OF THE STUDY: -

The hypotheses of the present research have been formulated as under:
NULL HYPOTHESIS:
1) There is no significant difference in profitability performance of selected
FMCG companies during the study period.
2) There is no significant difference in liquidity performance of selected
FMCG companies during the study period.
3) There is no significant difference in leverage performance of selected
FMCG companies during the study period.

ALTERNATE HYPOTHESIS:

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 1) There is significant difference in profitability performance of selected
FMCG companies during the study period.
2) There is significant difference in liquidity performance of selected FMCG
companies during the study period.
3) There is significant difference in leverage performance of selected FMCG
companies during the study period.

3.11 TOOLS OF ANALYSIS:

(A) Ratio Analysis: Ratios are among the well known and most widely used
tools of financial analysis. Ratio can be defined as “The indicated
quotient of two mathematical expression”. An operational definition of
ratio is the relationship between one item to another expressed in
simple mathematical form.

(B)Average: The most commonly used average is the arithmetic mean,

briefly referred to as the mean. The mean can be found by adding all the
variables and dividing it by total number of years taken. It gives a brief
picture of a large group, which it represents and gives a basic of
comparison with other groups.2

(C) The Standard Deviation: The standard deviation concept was

introduced by Karl – Pearson in 1823. It is by far the most important
and widely used measure of studying Dispersion. Standard Deviation is
also known as root mean square deviation for the reason that it is the
square root of the mean of the squared deviation from arithmetic mean.
Standard deviation is denoted by small Greek letter “σ”.5 (Read as sigma)

(D) Analysis of Variance: Prof. R. A. Fisher was the first man to use the
term, ‘Variance’ and in fact, it was he who developed a very elaborate
theory concerning ANOVA, explaining its usefulness in practical field.
ANOVA is essentially a procedure for testing the difference among
different groups of data for homogeneity. There may be variation
between samples and also within sample items. ANOVA consists in

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 splitting the variance for analytical purpose. Hence, it is a method of
analyzing the variance to which response is subject into its various
components corresponding to various sources of variation. For the
testing of hypothesis ANOVA test has been applied by the researcher.

3.12 CHAPTER PLAN:

For the present study whole research work is completed with following
chapters:
1. Introduction of FMCG Companies
2. Conceptual Framework of Financial Analysis
3. Research Methodology
4. Analysis of Financial Performance
5. Summary, Findings and Suggestions

3.13 LIMITATIONS OF THE STUDY:-

Every live and non-live factor has its own limitations which restrict the usability
of that factor. The same rule applies to this research work. The study suffers
from certain limitations as follows::

1. This study is mainly based on secondary data derived from the annual
reports of selected units and data base website. The reliability and the
finding are contingent upon the data published in annual reports.
2. There are many approaches for evaluation of Profitability, Liquidity and
leverage. There are no common views among experts.
3. The study is limited to ten years only.
4. The researcher has also modified some of the formula used in the study.
The arbitrariness, if any, in the modification of the formula will also
influence the results of study.
5. Accounting ratios have its own limitation, which also applied to the study.
6. Inflation plays vital role in Indian Economy. If we do not considered
inflation when analysis of financial condition, is studied, evaluation may
be not truly representative. In this study the effect of inflation is not
considered which its limitation becomes.

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 7. As, the study is conducted on micro level with the samples of 10 units, the
generalization of results cannot not be made to whole Indian corporate
world or FMCG industry.
8. Financial analysis do not respect those facts which cannot be expressed in
terms of money, for example – efficiency of workers, reputation and
prestige of the management

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