PREMIER UNIVERSITY

Faculty of Business Studies

Chittagong, Bangladesh.

Course Title: Working Capital Management

ASSIGNMENT ON MARICO BANGLADESH LTD.: A

study on Working Capital Requirement and Cash Budget.

Submitted To:
MR. RAJIB DATTA
ASSISTANT PROFESSOR
DEPARTMENT OF FINANCE

Submitted By:
Name Student Id Signature
Shatabdi Baidya 12-026-1-01-06007
Anwesha Das 12-026-1-01-06023
Swapnil Swadhinata 12-026-1-01-06084
Moni Dhar 12-026-1-01-06111
Asutosh Chakraborty 12-026-1-01-06133
Jannatul Nayma 12-026-1-01-06136

Semester: 8th Batch: 26th

Submission Date: 09th May 2017.

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 ACKNOWLEDGEMENT

The completion of this undertaking could not have been possible without the
participation and assistance of so many people whose names may not all be
enumerated. Their contributions are sincerely appreciated and gratefully
acknowledged. However, we would like to express our deep appreciation and
indebtedness particularly to the following:

Our honorable Sir Mr. Rajib Datta for his endless support, kind and
understanding spirit during our preparation of this report. To all friends and
others who in one way or another shared their support morally. Thank you.

SHATABDI BAIDYA

ANWESHA DAS

SWAPNIL SWADHINATA

MONI DHAR

ASUTOSH CHAKRABORTY

JANNATUL NAYMA

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 Executive Summary:
Working capital (Current assets-Current liabilities) and short term financing are
known as working capital management. It involves the relationship between a
firm’s short-term assets and its short term liabilities.

The goal of working capital management is to ensure that the firm is able to
continue its operation and that it has sufficient cash flow to satisfy both
maturing short term debt and upcoming operational expenses.

The various information regarding “Working Capital Management” such as

classification, objectives, components, cash budget, working capital
requirement have been discussed relating to Marico Bangladesh Ltd.

Working capital is a common measure of a company's liquidity, efficiency, and

overall health. Working capital is a daily necessity for businesses, as they
require a regular amount of cash to make routine payments, cover unexpected
costs and purchase basic materials used in production of goods. Proper
management of working capital is essential to a company’s fundamental
financial health and operational success as a business.

A cash budget is an estimation of the cash inflows and outflows for a business
over a specific period of time, and this budget is used to assess whether the
entity has sufficient cash to operate. Its primary purpose is to provide the status
of the company’s cash position at any point of time. This helps the company
make critical decisions such as creating cash reserves to make arrangements for
projected shortages and using excess funds prudently. Additionally, the cash
budget helps in prioritizing payments in the budget period. It also helps in
analyzing budget-versus-actual variances in cash inflow and outflow. This
report will gives in detail about the working capital, its requirements and cash
budget of Marico Bangladesh Ltd. We measured the companies’ working
capital and cash budget based on 2016 and 2015 annual report.
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 Table of Contents
Cover Page………………………………………………………….....01

Acknowledgement…………………………………………………….02

Executive Summary …………………………………………………..03

Table of contents ……………………………………………………...04

Introduction……………………………………………………………05

Company overview……………………………………………………06-07

Introduction of working Capital………………………………………..08

Working Capital Management ………………………………………...09

Objectives of Working Capital Management………………………….10

Components of Working Capital………………………………………11-13

Why Company needs Working Capital………………………………..14

Working Capital Requirement…………………………………………15

Cash Budget……………………………………………………………16

2 years Comparison……………………………………………………..17

Suggestions……………………………………………………………...18

Conclusion………………………………………………………………19

References……………………………………………………………….20

Appendix………………………………………………………………...21

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 INTRODUCTION:

Working capital management is one of the major issues of corporate finance.

The success of any manufacturing company largely relies on the efficient
management of working capital. There are different theoretical developments
and empirical issues but there is no unified rule that can determine the optimal
level of working capital. From the viewpoint of developing country like
Bangladesh the role of working capital should be highly emphasized. But our
country is characterized by low level of capital market development and
inefficiency of financial market. In such a situation, it is hardly possible to have
the desired funds to maintain the liquidity of business by collecting and
investing funds as and when required.

This report focuses on the working capital management of a reputed

manufacturing firm of Bangladesh. In this regard, we have selected Marico
Bangladesh Ltd. We tried to link our findings in working capital in Marico
Bangladesh Ltd. and theoretical aspects. We have particularly pointed in the
working capital requirement and cash budget. Overall working capital
management of Marico Bangladesh has been stated in detailed.

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 COMPANY OVERVIEW:

Marico Bangladesh Limited is amongst the top 3 Fast Moving Consumer Goods
(FMCG) MNC companies and a trusted brand in beauty and wellness space in
Bangladesh. The company touches the lives of 1 out of every 2 Bangladeshis
with an array of brands in various categories, including hair nourishment, edible
oil and male grooming, through a strong distribution network that reaches more
than 790,000 outlets throughout the country.

Its flagship brand, Parachute completed its journey of 12 successful years in

Bangladesh, with an ever-growing base of loyal consumers in October 2013.
The brand has been amongst top 10 most trusted brands continuously since
2009 and was awarded the title of "Best Brand" by Bangladesh Brand Forum
and Nielsen in 2011.

Over the years, the company has strengthened its brand portfolio, most notably
through the expansion of its VAHO (Value Added Hair Oil) segment. The
VAHO segment now consists of several popular brands such as Parachute
Beliphool Lite, Parachute Advanced, Parachute Cooling Hair Oil and Nihar.
Marico Bangladesh Limited also leads the powdered hair dye market with the
Hair Code brand. The company continued to diversify its portfolio with the
introduction of Saffola Active (a healthy edible oil) and Set Wet Deodorants in
2013.

Journey of Marico Company in Bangladesh is as follows:

 Incorporated in 1999
 Started operations in 2000
 Marico Bangladesh listed on Dhaka and Chittagong Stock Exchange in
2009
 Launched Haircode Hair Dye in 2009 and achieved a market share of
over 15% in its first year
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 Launched Parachute Advanced Cooling Hail Oil in 2011
 Started bottling at Mouchak, near Gazipur in 2002 and copra crushing
manufacturing in Mahona, Bhavanipur in 2012
 Launched Saffola Active Edible Oil, Livon Silky Potion, Set Wet
Deodorants and Livon
 Launched Nihar shanty Badam amla and Hair Code Keshkala in 2014.

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 INTRODUCTION OF WORKING CAPITAL:

Working capital is the life blood and nerve center of a business. Just as
circulation of blood is essential in the human body for maintaining life, working
capital is very essential to maintain the smooth running of a business. No
business can run successfully without an adequate amount of working capital.

There is operative aspects of working capital i.e. current assets which is known
as funds also employed to the business process from the gross working capital
Current asset comprises cash receivables, inventories, marketable securities held
as short term investment and other items nearer to cash or equivalent to cash.
Working capital comes into business operation when actual operation takes
place generally the requirement of quantum of working capital is determined
by the level of production which depends upon the management attitude
towards risk and the factors which influence the amount of cash, inventories,
receivables and other current assets required to support given volume of
production.

Working capital management as usually concerned with administration of the

current assets as well as current liabilities. The area includes the requirement of
funds from various resources and to utilize them in all result oriented manner. It
can be stated without exaggeration that effective working capital management is
the short requirement of long term success.

The importance of working capital management is indisputable; Business

liability relies on its ability to effective management of receivables, inventory,
and payables. By minimizing the amount of funds tied up in current assets.
Firms are able to reduce financing costs or increase the funds available for
expansion. Many managerial efforts are put into bringing non-optimal level of
current assets and liabilities back towards their optimal levels

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 WORKING CAPITAL MANAGEMENT:

Working Capital Management refers to management of current assets and

current liabilities. The major thrust of course is on the management of current
assets .This is understandable because current liabilities arise in the context of
current assets. Working Capital Management is a significant fact of financial
management. Its Importance stems from two reasons:-

 Investment in current assets represents a substantial portion of total

investment.
 Investment in current assets and the level of current liabilities have to be
geared quickly to change in sales. To be sure, fixed asset investment and
long term financing are responsive to variation in sales. However, this
relationship is not as close and direct as it is in the case of working capital
components.

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 OBJECTIVES OF WORKING CAPITAL MANAGEMENT:

Effective management of working capital is means of accomplishing the firm’s

goal of adequate liquidity. It is concerned with the administration of current
assets and current liabilities. It has the main following objectives-

1. To maximize profit of the firm.

2. To help in timely payment of bills.

3. To maintain sufficient current assets.

4. To ensure adequate liquidity of the firms.

5. It protects the solvency of the firm.

6. To discharge current liabilities.

7. To increase the value of the firm.

8. To minimize the risk of business.

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 COMPONENTS OF WORKING CAPITAL:

The components of working capital are:

 CASH MANAGEMENT
 RECEIVABLES MANAGEMENT
 INVENTORY MANAGEMENT

CASH MANAGEMENT:

Cash is the important current asset for the operation of the business. Cash is the
basic input needed to keep the business running in the continuous basis, it is
also the ultimate output expected to be realized by selling or product
manufactured by the firm.

The firm should keep sufficient cash neither more nor less. Cash shortage will
disrupt the firm’s manufacturing operations while excessive cash will simply
remain ideal without contributing anything towards the firm’s profitability.
Thus a major function of the financial manager is to maintain a sound cash
position. Cash is the money, which a firm can disburse immediately without any
restriction. The term cash includes coins, currency and cheques held by the firm
and balances in its bank account.

RECEIVABLES MANAGEMENT:

Receivables or debtors are the one of the most important parts of the current
Assets which is created if the company sells the finished goods to the customer
but not receive the cash for the same immediately. Trade credit arises when a
company sales its products or services on credit and does not receive cash
immediately. It is an essential marketing tool, acting as a bridge for the moment
of goods through production and distribution stages to customers.

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The receivables include three characteristics

1) It involve element of risk which should be carefully analysis.

2) It is based on economic value. To the buyer, the economic value in goods or

services passes immediately at the time of sale, while seller expects an
equivalent value to be received later on.

3)It implies futurity. The cash payment for goods or serves received by the
buyer will be made by him in a future period.

INVENTORY MANAGEMENT:

Inventories are goods held for eventual sale by a firm. Inventories are thus one
of the major elements, which help the firm in obtaining the desired level of
sales. Inventories include raw materials, semi-finished goods, and finished
products.

In company there should be an optimum level of investment for any asset,

whether it is plant, cash or inventories. Again inadequate disrupts production
and causes losses in sales. Efficient management of inventory should ultimately
result in wealth maximization of owner’s wealth. It implies that while the
management should try to pursue financial objective of turning inventory as
quickly as possible, it should at the same time ensure sufficient inventories to
satisfy production and sales demand.

The main objectives of inventory management are operational and financial.

The operational mean that means that the materials and spares should be
available insufficient quantity so that work is not disrupted for want of
inventory. The financial objective means that investments in inventories should
not remain ideal and minimum working capital should be locked in it.

The following are the objectives of inventory management:-

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 To ensure continuous supply of materials, spares and finished goods.
 To avoid both over and under stocking of inventory.
 To maintain investments in inventories at the optimum level as
required by the operational and sale activities.
 To keep material cost under control so that they contribute in reducing
cost of production and overall purchases.
 To minimize losses through deterioration, pilferage, wastages and
damages.
 To design proper organization for inventory control so that
management. Clear cut account ability should be fixed at various
levels of the organization.
 To ensure perpetual inventory control so that materials shown in stock
ledgers should be actually lying in the stores.
 To ensure right quality of goods at reasonable prices.

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 WHY MARICO COMPANY USES WORKING CAPITAL MANAGEMENT:

The need for working capital arises due to the time gap between production and
realization of cash from sales. Working capital is must for Marico Company for
purchasing raw-materials, semi finished goods, stores & spares etc and the
following purposes.

1. To purchase raw materials, spare parts and other component.

Marico Company needs raw-materials and other components parts for the
purpose of converting them in to final products, for this purpose it requires
working capital. Trading concern requires less working capital.

2. To meet over head expenses.

Working capital is required to meet recurring over head expenses of Marico

Company such as cost of fuel, power, office expenses and other manufacturing
expenses.

3. To hold finished and spare parts etc.

Stock represents current asset. Marico Company maintains stock of required

finished goods, work in progress & spares in required quantities to operate
successfully. So for that adequate quantity of working capital is required.

4. To pay selling & distribution expenses.

A. Working capital is required by Marico Company to pay selling &

distribution expenses. It includes cost of packing, commission etc.

B. Working capital is required by Marico Company for repairs & maintenance

both machinery as well as factory buildings.

C. Working capital is required by Marico Company to pay wages, salaries and

other charges.

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 Calculation of Working Capital Requirements:
Particulars 2016 2015
Taka Taka
(a)
Inventories 1262292780 1822852895
Accrued Interest 13458959 14021076
Advances, Deposits and Prepayments 169523023 49507281
Short term investment 847797172 500000000
Cash and Cash Equivalents 480524575 191990392
Total Current Assets 2773596509 2578371644
(b)
Provision for gratuity 5183998 2646276
provision for leave encashment 1844907 1310915
Trade and other Payables 1283487511 1245243909
Current Tax Liabilities 423337033 365667085
Total Current Liabilities 1713853449 1614868185

Working Capital : [(a)-(b)] 1059743060 963503459

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 Cash budget:

The Cash Budget is a budget prepared to estimate the cash inflows and outflows
during a specific period of time. In other words, cash budget shows the cash
inflows and cash outflows expected to occur in the immediate future period.

The purpose of preparing the cash budget is to determine that whether the
enterprise has sufficient cash balance to meet out its short-term cash
requirements or whether too much cash is being left idle and unproductive in
the organization. Thus, it helps the management to determine the surplus and
shortage of funds so that suitable actions can be undertaken.

One of the major advantages of cash budget is that it provides a clear picture of
all the expected cash flows, thereby enabling the firms to plan their
expenditures accordingly. Also, the companies can raise adequate funds in case
of the shortage of the cash balance and can make an optimum utilization of
funds in case of cash surplus, for example investing in marketable securities.

But however, these cash budgets are not free from the limitations. These are less
reliable as the future is uncertain and the cash forecast may not be correct. For
example, unseen demands of cash, delayed cash collection, unanticipated cash
disbursements, etc. Also, the cash budget is inefficient to track a significant
movement in the working capital items.

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 Calculation of Cash Budget of Marico Bangladesh:

Particulars 2016 2015

Taka Taka

Opening Cash Balance 191990392 442266619

Sources of income :

Collection from customers 7,362,678,637 7,149,084,037

Interest received 110,361,916 167,912,236

Disposal of property, plant and equipment 3,716,783 1,721,794

other income 2,468,764 844,066

Net finance income 114,518,588 100,680,684

Total inflow of cash 7785735080 7862509436

Use of Cash :

Dividend paid 1,417,500,000 1,338,750,000

Income Tax Expense 500,313,493 580,950,405

Acquisition of property, plant and equipment 92,079,077 49,532,157

Payment to suppliers and for operating expenses 4,820,387,737 6,325,870,698

Acquisition of intangible Assets 9,217,547 3,904,959

Interest paid 928,127 2,502,325

Total Cash outflow 6,840,425,981 8,301,510,544

Net Operating Cash Flow 945,309,099 -439,001,108

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 Two years Comparison of Marico Bangladesh Limited:

From the working capital requirement, we see that both the current assets and
Current liabilities are higher in 2016 than 2015. For that reason the working
capital of Marico Bangladesh limited is also higher in 2016 than 2015. It shows
a positive net working capital. It means that Marico has appropriate amount of
current assets to meet the current liabilities.

From the cash budget, we see that in 2015 Marico Bangladesh limited had
unfavorable cash flow. But in 2016 the company has favorable cash flow.

In 2015 the company had insufficient cash balance to meet its short term cash
requirements. In 2016 the company has sufficient cash balance to meet its short
term cash requirements.

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 Suggestion:

Working capital of the Marico Bangladesh is increasing every year. Profit is

also increasing every year. This is a good sign for the company. It has to
maintain it further, to run the business in long term. The company should take
precautionary measures for investing and collecting funds from receivables and
to reduce the bad debts.

The company is utilizing working capital effectively which is good for the
company. It has to maintain the trend. Marico is one of the leading FMCG
companies in the beauty and wellness space of Bangladesh. Committed to make
a difference, they touch the lives of 1 out of every 2 Bangladeshis through our
wide array of brands.

The company is making prompt payment to its creditors. This is good sign for
the company. On-time payment to suppliers will increase the credibility of the
firm. It has maintained it to survive in the market.

The company is utilizing working capital effectively this is good for the
company.

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 References:
[ CITATION Mar15 \l 1033 ][ CITATION Mar16 \l 1033 ][ CITATION Goo17 \l 1033 ] [ CITATION MAR17

\l 1033 ] [ CITATION Fre18 \l 1033 ].

Bibliography
(2017-2018). Modern Working Capital Management . In F. C.Scherr, Modern
Working Capital Management .

Google. (2017). Retrieved from www.google.com : http://www.google.com

Limited, M. B. (2015). Annual Report of Marico Bangladesh .

Limted, M. B. (2016). Annual Report of Marico Bangladesh, Ltd.

MARICO Bangladesh Home Page . (2017). Retrieved from www.marico.bd.com:

http:www.marico.bd.com

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Appendix

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