A REPORT

On
A STUDY ON WORKING CAPITAL MANAGEMENT AT
GLAXOSMITHKLINE CONSUMER HEALTHCARE LTD

By
Sai Sindhu Medapati
16BSPHH01C0848

At
GlaxoSmithKline Consumer Healthcare Ltd

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 A REPORT
On
A STUDY ON WORKING CAPITAL MANAGEMENT AT
GLAXOSMITHKLINE CONSUMER HEALTHCARE LTD

By
Sai Sindhu Medapati
16BSPHH01C0848
At
GlaxoSmithKline Consumer Healthcare Ltd

A report submitted in partial fulfillment of the requirements of MBA

program of IBS Hyderabad

Distribution list:
Dr. Purna Prabhakar Nandamuri (Faculty Guide)
Mr. P Sriram Murthy (Company Guide)

Date of Submission: 13th May, 2017

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 AUTHORISATION

This is to certify that this is a bona fide project report submitted in partial fulfilment of the
requirement of MBA program of ICFAI Business School (IBS)-Hyderabad.

This report document titled: “A Study on Working Capital Management at

GlaxoSmithKline Consumer Healthcare Ltd” –as part of the completion of the Internship
Program at GlaxoSmithKline Consumer Healthcare Ltd under the guidance of Mr. P.
Sriram Murthy, Deputy Manager, Finance Department, GSKCH Limited,
Rajahmundry(Andhra Pradesh).

This report has been formally submitted to Dr. Purna Prabhakar Nandamuri, Associate
Professor, IBS Hyderabad.

Sai Sindhu Medapati

16BSPHH01C0848
13th May 2017

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 ACKNOWLEDGEMENT
“Perseverance inspiration and motivation have always played a key role in success of any
venture”.

I hereby express my deep sense of gratitude to all the personalities involved directly and
indirectly in my project work.

I express my sincere thanks to Mr.Siddhant Belgaonkar (Site Finance head),

GlaxoSmithKline Consumer Healthcare Limited for permitting me to do the project work in
their esteemed organization.

I am highly indebted to Mr. P.Sriram Murthy (Deputy Finance Manager) and all other
finance department officers and staff of GlaxoSmithKline Consumer Healthcare Limited
,Rajahmundry for their valuable cooperation and assistance in successfully carrying out this
project.

I wish to express my deepest sense of gratitude to my faculty guide Dr.N.Purna Prabhakar ,

and the administrative staff of the department of IBS Hyderabad, for their support.

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 TABLE OF CONTENTS
S No. TOPIC PAGE No.
Authorization iii
Acknowledgement iv
Executive Summary vi
1 Introduction to the study 7
1.1 Objectives 7
1.2 Scope 7
1.3 Methodology 7
1.4 Limitations 8
2 Industry profile 8
3 Company profile 11
4 Theoretical framework 17
4.1 Working Capital Management 17
4.2 Ratio analysis 21
5 Data Analysis & Interpretation 31
5.1 Ratio Analysis 31
5.1.1 Liquidity ratios 31
5.1.2 Leverage ratios 34
5.1.3 Activity ratios 36
5.1.4 Profitability ratios 41
5.2 Working capital analysis 45
5.3 Operating cycle analysis 50
6 Findings & Recommendations 52
6.1 Findings 52
6.2 Recommendations 52
7 Conclusion 54
8 References 55
9 Annexure 56

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 EXECUTIVE SUMMARY
The aim of good working capital management is to maintain balance in having sufficient working capital
to ensure that the business is liquid to meet its current requirements. It must be noted that being liquid
does not mean to be in such a way that it affect or reduce the profitability of the business. Rather, it
means to maintain balance by finding ways to smooth out cash payments in order to keep working
capital stable. Thus, the importance of managing good working capital emerges due to the fact that a
business that manages its working capital effectively can survive while meeting its day-to-day operations
successfully which in turn leads to the long term success.

So to further study on this aspect I have started my project in GlaxoSmithKline Consumer Healthcare Ltd,
which is India’s largest health drink manufacturer.

It is important for a business to manage good working capital by undertaking each component relating to
working capital effectively and efficiently. The best sources for analyzing how the company maintains its
working capital, are the company’s financial statements.

Therefore, the report comprises of financial statement analysis in the form of financial ratio analysis
extracted from the annual reports of GlaxoSmithKline Consumer Healthcare Ltd. Apart from ratio
analysis, the working capital for each year is analysed and compared with its preceding and succeeding
years.

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 1. INTRODUCTION TO THE STUDY:
1.1 OBJECTIVES OF THE STUDY:

 To compare the financial results of GlaxoSmithKline Consumer Healthcare Ltd.

 To assess the present profitability and operating efficiency of the firm.
 To assess the short term as well as the long term liquidity position of the firm.
 To analyse working capital changes and operating cycle of the firm.
1.2 SCOPE OF THE STUDY:

 Study is based on the annual reports of the company for 2011 to 2016.
 Study relating to raw materials and finished goods.
 Study on policies of credit sales, records of account receivables, book debt and their collection
periods.
 Study of the current assets & current liabilites followed in the company.
 Study of major financial ratios under liquidity, leverage , profitability and activity ratio categories.

1.3 METHODOLOGY OF THE STUDY:

Any study needs information in order to make the correct analysis. All the data is carried in with the
cooperation of the Management of GlaxoSmithKline Consumer Healthcare Ltd., who permitted me to
carry on the study and provided with a requisite data.

The data for the study has been obtained from two principal sources:

(1) Primary Data

(2) Secondary Data

Primary data:

Primary data is gathered through a series of detailed discussions with managers, workers and
executives of the company. Continuous interaction with the employees during the survey helped me to
arrive at certain conclusions about the study.

Secondary data:

Secondary data is mainly dependent on the company’s annual reports, company’s magazines,
annual accounts, cost sheets, balance sheet, brochures, reference books provided by the organization.
Certain standard text books of eminent authors were also referred for the purpose of the Theoretical
backdrop of the Subject.

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1.4 LIMITATIONS OF THE STUDY:

The study of Comparative Statements in GlaxoSmithKline Consumer Healthcare

limited had a few constraints:

 The research is mainly dependent upon the secondary data. Hence, opinions expressed based upon
such data are subjective to the correctness of such data.
 The available data, which is used for analyzing the Comparative Statements, are taken from account
books of the company.
 The study is confined to only Rajahmundry plant. Hence, results are GSKCH India ltd only, not
universe across GSK.

2. INDUSTRY PROFILE:
ABOUT HEALTH DRINK INDUSTRY:

The Malted Health Drink Market is one of the rapidly growing dynamic markets in food
services sector in India. Due to increase standard of living and changing lifestyle and high level of
consumerism backed by rising income levels, growing inclination of Indian consumers towards healthier
food and beverages by which Indian market become an emerging trend of food industry that makes
positive impact on Malted Health Drink Markets. The various malted health drink products like Horlicks,
Bournvita, Complan, Boost, Milo, Amul pro has high impetus to the Indian Malted Health Drink Market.

Coupled with the fact that kids love the delicious taste of these drinks, once they have tried
them, lies the basic tale of milk additives and the growth and development of the Health Food Drink
(HFD) category. No one can be sure of when and how the category evolved but, today, in India the Health
Food Drink market is valued at a large amount in the economy. Newer products that have efficacious
amounts of nutritional ingredients are being developed by the manufacturers.

Another key trend in health drink industry is the increasing preference for healthy products.
Consumers have become increasingly aware of health and fitness-related issues. Additionally, due to
greater disposable incomes, particularly in urban areas, consumers are seeking healthier beverages even if
they are relatively more expensive. This trend is so far restricted to urban consumers whilst for the rural
consumer; manufacturers continue to focus on offering economy pack sizes.

According to “India Malted Health Drink Overview”, India’s malted drink market is expected to
grow with a CAGR of 17.4% for next six years. Owing to urbanization and increased income of people,
south India has the largest market share in malted drinks, followed by east and north. The malted health
drink market divided into white and brown powder i.e. without cocoa powder and with cocoa powder

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consisting barley or corn malt. Nowadays, manufacturers have a range of brands pleasing separately to
kids, adults and the entire family.

INDUSTRY PLAYERS ACROSS INDIA:

1. GlaxoSmithKline Consumer Healthcare Ltd:

Founded: 2000
Head Office: Delhi
Brand Names: Horlicks, Boost, Maltova, And Viva.

GSK also has a consumer Healthcare portfolio

comprising over-the-counter (OTC) medicines, oral care
products and nutritional healthcare drinks, all of which are among the market leaders. GSK R&D is based
at 24 sites in seven countries. The company has a leading position in genomics / genetic and new drug
discovery technologies. The GSK R&D budget is about $4bn. Over 35000 employees work at 85
manufacturing sites in 37 countries and over 16,000 are in R&D.

2. Heinz India Private Limited:

Founded: 1994
Head Office: Maharashtra.
Products: Ketchup / Milk-Based Beverages
Brand Names and Trademarks: Complan / Farex / Glucon
D / Heinz / Nycil / Sampriti.

The H. J. Heinz Company manufactures thousands of food products in

plants on six continents, and markets these products in more than 200 countries and territories. The
company claims to have 150 number-one or number two-brands worldwide. Heinz ranked first
in ketchup in the US with a market share in excess of 50%;Ore-Ida label held 46% of the frozen-potato
sector in 2003.

3. Cadbury India Private Limited:

Founded: 1970
Head Office: Mumbai.
Brand Names: Bournvita (Health Drink), Dairy Milk &
5star (Chocolates) etc.

Bourn vita is the leading brand in the brown drinks segment

of milk/malted food products. Overall share in the malted
food drinks market is estimated at 15%.The brand was re-launched in the South – the largest food drink
market in the country, contributing to 24% of total turnover.

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 4. The Gujarat Cooperative Milk Marketing Federation (GCMMF):
Brand Names: Amul Shakti (Health Drink)

The Gujarat Cooperative Milk Marketing Federation (GCMMF)

forays into the white health-food-drink market with Amul Shakti, a white
beverage. The Rs 1,400-crore health-food-drink market is dominated by
Horlicks, Viva, Complan, Milo and Bourn vita. The health food drink
segment comprises white and brown categories. Amul Shakti is being
positioned as a milk food that has "real milk for real nourishment" and GCMMF says it will provide the
brand mass media support to create consumer awareness.

5. Nestlé India Private Limited:

Brand Names: Milo (Health Drink)

NESTLÉ India is a subsidiary of NESTLÉ S.A. of

Switzerland. With eight factories and a large number of
co-packers, Nestlé India is a vibrant Company that
provides consumers in India with products of global
standards and is committed to long-term sustainable growth and shareholder satisfaction.

MARKET SHARE

Company Share -Value

GlaxoSmithKline 63%
Cadbury 16.2%
Heinz 13.9%
GCMMF 3%
Nestle 3%
Others 0.9%

Source: CRISIL Consumer Behaviour survey 2015

INDUSTRY UPDATES:
 Nestle India Ltd relaunched Milo in a ready-to-drink format in February 2017.
 French multinational Danone SA, is entering the market with its health drink Protinex Grow.
 This is unusual for a market that has not seen much action since the 1960s.
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 3. COMPANY PROFILE:

GlaxoSmithKline Consumer Healthcare Ltd:

GlaxoSmithKline Consumer Healthcare (GCHL), headquartered in Gurgaon, is one of the
leading consumer healthcare companies in India. The company traces its roots to Beecham (India) Pvt Ltd.
in 1948. Institutions hold 12.95% of its shares, Horlicks Ltd holds 43.16% of its shares while
GlaxoSmithKline Pte Ltd holds 29.29% of the shares. This translates to a promoter holding of 72.46% in
the company. The public shareholding is at 14.59%, as on FY15. GCHL serves the Indian market as well
as international markets of Sri Lanka, Bangladesh, Nepal, Middle East, Kenya, Malaysia, Myanmar and
Pakistan.
In its early years, Beecham (India) Pvt Ltd manufactured products like Brylcreem hair cream,
Eno fruit salt, Pure Silvikrin, Silvikrin hair dressing, Macleans toothpaste and Macleans brand indigestion
powder with technical and marketing know-how from Beecham Group Ltd, UK.
After beginning its India operations as early as 1948, the company used to import its now
ubiquitous health drink ‘Horlicks’ (manufactured by Horlicks Ltd, England), bottle it and sell it in India.
The year 1955 saw a change in the import policy following which the import of Horlicks was stopped. It
was in 1958 that the company started manufacturing Horlicks in India under the name Hindustan Milkfood
Manufacturers Pvt Ltd, promoted by Horlicks Ltd.
GCHL is currently the largest player in the health food drinks (HFD) category. The company
has been able to build a leadership position in the nutritional food segment with its product offerings viz.
Horlicks, Boost, Maltova and Viva. GCHL also has Crocin, Eno and Iodex in its over the counter (OTC)
portfolio. The company is also present in the premium toothpaste category with Sensodyne. GCHL also
has Breathe Right nasal strips in its portfolio. The company manufactures and sells only products in its
nutritional food segment. Also, GCHL derives business auxiliary service commission from certain group
companies for services rendered towards selling and distribution of the latter’s products.
GCHL has its own manufacturing facilities at Nabha in Punjab, Rajahmundry in Andhra
Pradesh and Sonepat in Haryana.

VISION:
The company states it vision as
“We want to become the indisputable leader in our industry – not simply in terms of size, but in how we
use that size to achieve our mission and improve the quality of human life. Becoming the indisputable
leader in our industry means conquering the challenges that face us as an industry, and as a global
society“

MISSION:
The mission as described by the company is as follows

“Our global conquest is to improve the quality of human life by enabling people to

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 Do more,
Feel better and
Live longer.

We at GSK dedicate ourselves to deliver innovative products that help a millions of people around the
world live longer, healthier and happier lives.”

ORIGIN OF GSK: (INDIA)

In the early years, Horlicks was imported, bottled and sold in India. Due to change in the
import policy in the year 1955 the import of Horlicks was stopped.

In 1956-57, a team from HORLICKS Limited visited India to explore the possibilities of
setting up a plant. With the support of the then Maharaja of NABHA, His Highness PRATAP SINGH, a
plant was set up at NABHA, in Punjab. Thus was born on October 30, 1958, Hindustan Milk Food
Manufactures Private Limited, promoted by HORLICKS Limited.

In the year 1969, Beecham pharmaceutical, acquired HORLICKS Ltd. and became the
majority shareholder in Hindustan Milk Food Manufactures Limited.

Ten years later in 1979, Beecham India Private Ltd., Bombay, merged with Hindustan
Milk Food Manufactures Ltd. and non-resident equity shareholding was reduced to 40%. The name of the
company was also changed to HMM Limited.

Beecham Group Pharmaceutical, U.K., and SmithKline, U.S.A, merged on September

16, 1991, to form SmithKline Beecham plc, with its registered office in the U.K. HMM Limited thus
became a part of SmithKline Beecham Consumer Brands one of the three sectors of SmithKline Beecham
and its name was changed to SmithKline Beecham Consumer Brands Limited.

Yet another Christen took place in March 1994 when the name of the company was
changed to SmithKline Beecham Consumer Healthcare Limited, reasserting the company’s promise of
providing healthcare to Consumers. SmithKline is in line of:

 SmithKline Beecham Consumer Health Care.

 SmithKline Beecham Pharmaceuticals.
 SmithKline Beecham Health Care’s Service.
 SmithKline Beecham Clinical Laboratories.

The Parent Company of SmithKline Beecham Consumer’s Health Care Ltd.,

SmithKline Beecham plc. globally merged with Glaxo Wellcome Plc on 27th December 2000 to form a
new entity.
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PRODUCT PROFILE:

Horlicks:
'Taller, Stronger, Sharper.'

Horlicks is the leading Health Food Drink in India and enjoys more than
50% share of the Health Food Drink Market.

Horlicks has been a popular brand in the country since the 1930’s.
Today, the modern Horlicks stands for trust and its promise of ‘Pleasurable
Nourishment’ with a delicious range of flavors including Chocolate, Vanilla and Elaichi. Horlicks is the
only health drink, clinically proven* in India, to make kids taller, stronger and sharper.

Boost:
'Boost is the secret of my energy!'

Boost is India's leading malt-based Health Food Drink in a chocolate flavor was
developed by its R&D team in 1974 and launched in 1975-76. Boost has a market
share of 13% countrywide amongst all Health Food Drinks (HFD), while in South
India - the biggest region for the category - it commands a market share of 24%.

Viva:
'Start to a bright and healthy day!'

Viva is based on the belief that a good start to the day ensures that the rest of it
goes well too. New Viva has VitaHealthTM - a combination of 9 essential Vitamins
[Vitamin A, D, B1, B2, Niacin, Vitamin B6, Folic acid, Vitamin B12 & C], Iron,
Calcium and Phosphorous. Viva contains the natural goodness of milk, wheat and
malted barley.

Maltova:
'The yummy Chocó-malt drink'

Maltova, a chocolate Health Food Drink, was acquired from Jagatjit Industries
Limited in Feb 2000. To kids Maltova is the fun health drink, which is extremely
tasty, and makes nourishment truly enjoyable and exciting. It was re-launched in
June 2002 having Active Rechargers TM, a combination of essential vitamins,
minerals and carbohydrates.

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 Chocolate Horlicks:

Category was further strengthened with the launch of Chocolate Horlicks

in November 1990.

Mother's Horlicks:

Mother's Horlicks, launched in 1997, is a superior nutritional

supplement with 26 vital nutrients that is scientifically designed keeping the
nutritional needs of the pregnant and breast feeding women in mind. The launch
of its new variant was in May 2004 - Mother's Horlicks fortified with DHA
which helps in brain development of the child during pregnancy and the first few
years of life. It is important to note that in infants, breast milk is the only source
of DHA.

Women Horlicks:

Women's Horlicks is a complete list of micro nutrients for every

woman. Women's Horlicks is recommended by World Health Organization (WHO). It
consists of a unique blend of nourishing ingredients, which are scientifically
formulated to provide vitamins, calcium and protein.

Junior Horlicks:
'Specially formulated for preschool children'

New Junior Horlicks 1-2-3TM provides essential nutrition and when taken
as part of a healthy diet, helps complete A to Z nutrition for preschool kids. It was
launched in April ’06 with an all new formulation and exciting new packaging.

Horlicks Lite:
'Horlicks Lite & Lite Bite'
A nutritional drink & snack specially formulated for all health conscious
adults and is also suitable for use by people with diabetes Horlicks Lite health food
drink and Lite Bite biscuits was launched in the market in Sep ’05. This range of
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 products have been specially formulated keeping in mind nutritional needs of adults and is
also suitable for use by people with diabetes.

Horlicks Biscuits:
'With the Power of Calcium!'

Horlicks Biscuits has been growing in popularity ever since it was

launched in 1992. Extending the benefits of Horlicks to 'solid' nourishment,
Horlicks Biscuits is a favorite among parents and children. Each pack contains
the 'Power of Calcium' providing 100% RDA of calcium. Horlicks Biscuits are
available in two flavors - Standard & Elaichi - and live up to the Horlicks
promise of 'great taste' and 'nourishment'.

IODEX:

It has been in the country since 1919.the IODEX brand is owned by

smith Kline French lab UK and licensed to GSK pharmaceuticals Ltd.,
India. From January 2002, the sales, marketing and promotion of the brand
have shifted to GSK consumer. The deeply penetrating action of IODEX
provides long lasting relief from back aches, waist pains, muscles strains
and sprains.

Crocin:

It was acquired from Duphar in 1996 and is available in

the form drops and tablets

ENO:

ENO is a 100 years old global brand. It is part of the

gastrointestinal category. Eno is the only powder antacid in India and
has shown a very favorable growth over the years. This has been
strengthened with the introduction of the lemon variant and the sachet
pack.

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FACTORY PROFILE

Horlicks was an instant success in India and the product was always in short supply. To
meet the growing demand of the product the management foresaw the need of a factory in India, in 1966 a
lots of surveys were carried out to find a suitable location.
Rajahmundry was found to be an ideal location for the second factory because of the
following reasons:

a. The wide availability of milk – one of the most important raw materials for the production of
Horlicks.
b. Cost of labor being cheap.
c. Wide availability of water – a natural resource
d. The proximity to the biggest market – South
e. The enthusiastic and co-operative government

 The factory is situated at Dowlaiswaram industrial estate 10 kilometers away from Rajahmundry where
50 acres of land was acquired in 1968-69.
 The expansion began in 1974 and by 1990 the factory developed a capacity of six lines.
 Right now the capacity of production is seven lines i.e. 24 kt per annum, which was started in August
1999.
 GSK, Rajahmundry is in the forefront of implementing new technological initiatives to enhance its
competitiveness. GSK LTD., Rajahmundry recognizes its responsibilities in an area of occupational
safety and hygiene.

Internal departments of GSK Dowlaiswaram Unit:

 Administration Department
 Production Department
 Finance Department
 Information Department
 Purchase Department
 Environment & Safety Department
 Engineering & Safety Department
 Human resources & Administration Department
 Stores Department

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 4. THEORETICAL FRAMEWORK:
4.1 WORKING CAPITAL MANAGEMENT

“Working capital means the part of the total assets of the business that change from one form to
another form in the ordinary course of business operations.”

Working capital is the firm’s holdings of current assets such as Cash, receivables, inventory
and marketable securities. Every firm required working capital for its day to day transaction such as
purchasing raw material, for meeting salaries, wages, rents rates, advertising etc.

DEFINITION:

“Working capital is the amount of funds necessary to cover the cost of operation the enterprise”
- Shubin

“Circulating capital means current asserts of a company that are changed in the ordinary course of
business form one form to another as for example, from cash to investors, inventories to receivable,
receivable into case”.
- Genestenberg

SIGNIFICANCE:

It is said that working capital is the lifeblood of a business. Every business needs funds in
order to run its day-to-day activities. The importance of working capital can be better understood by the
following:

 It helps measure profitability of an enterprise.

 Without adequate working capital an entity cannot meet its short-term liabilities in time.

 A firm having a healthy working capital position can get loans easily by its goodwill.

 Sufficient working capital helps maintain an uninterrupted flow of production by supplying raw
materials and payment of wages.

 Sound working capital helps maintain optimum level of investment in current assets.

 It enhances liquidity, solvency, credit worthiness and reputation of enterprise.

 It provides necessary funds to meet unforeseen contingencies and thus helps the enterprise run
successfully during periods of crisis.
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CONCEPT OF WORKING CAPITAL:

Generally, working capital refers to the current assets of a company that are changed from one
form to another in the ordinary course of business.

There are two methodological concepts in respect of working capital:

1. Traditional Balance Sheet

2. Operating Cycle

1. TRADITIONAL BALANCE SHEET:

It shows the position of the firm at certain point of time. It is calculated in the basis of balance sheet
prepared at a specific date.
In this method there are two type of working capital:

Gross Working Capital:

The sum total of all current assets of a business concern is termed as gross working capital.

Gross working capital = Stock + Debtors + Receivables + Cash.

Net Working Capital:

The difference between current assets and current liabilities of a business concern is termed as the Net
working capital.

Net Working Capital = Stock + Debtors + Receivables + Cash – Creditors – Payables.

2. OPERATING CYCLE CONCEPT:

The duration or time required to complete the sequence of events right from purchase of raw
material for cash to the realization of sales in cash is called the operating cycle or working capital cycle.
Each component of working capital (namely inventory, receivables and payables) has two
dimensions TIME and MONEY. When If you can get money to move faster around the cycle (collect
monies due from debtors more quickly) or reduce the amount of money tied up (i.e.., reduce inventory
level relative to sales). The business will generate more cash or it will need to borrow less money to fund
working capital.

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 As a consequence, you could reduce the cost of bank interest or you will have additional money
available to support addition sales growth or investment. Similarly, if you can negotiate improved terms
with suppliers e.g. get longer credit or an increased credit limit, you festively create freed finance to help
fund future sales a perusal of operational cycle reveals that the cash invested in operations are recycled
back in to cash. However it takes time to reconvert the cash. The shorter the period of operating cycle the
larger will be the turnover of the funds invested in various purposes.
The duration of the operating cycle is equal to sum of the duration of these stages less the credit.
Period allowed by the suppliers of the firm. In symbol
OC= DIO+DSO-DPO
where
OC= Duration of the Operating Cycle
DIO: Days Inventory Outstanding
DSO: Days Sales Outstanding
DPO: Days Payable Outstanding

RAW
CASH
MATERIAL

DEBTORS&
WORK IN
BILLS
RECEVIABLE PROGRESS

FINISHED
SALES
GOODS

Page 19 of 66
CLASSIFICATION OF WORKING CAPITAL:

Working capital may be of different types as follows:

(a) Gross Working Capital refers to the amount of funds invested in various components of current assets.
It consists of raw materials, work in progress, debtors, finished goods, etc.

(b) Net Working Capital means the excess of current assets over current liabilities. The principal objective
here is to learn the composition and magnitude of current assets required to meet current liabilities.

(c) Positive Working Capital refers to the surplus of current assets over current liabilities.

(d) Negative Working Capital refers to the excess of current liabilities over current assets.

(e) Permanent Working Capital means the minimum amount of working capital which even required dur-
ing the dullest season of the year.

(f) Temporary or Variable Working Capital represents the additional current assets required at different
times during the operating year to meet additional inventory, extra cash, etc.

COMPONENTS OF WORKING CAPITAL:

Working capital is composed of various current assets and current liabilities, which are as follows:

CURRENT ASSETS CURRENT LIABILITIES

These are generally realized within a short These are paid in ordinary course of business
period of time, i.e. within one year. within a short period of time, i.e. one year.
Cash in hand Bills payable
Cash at bank Sundry creditors
Bills receivable Accrued expenses
sundry debtors Short term loan
Stock Dividends payable
Prepaid expenses Bank overdraft
Accrued income Provision taxation
Short term investment Bank Loans (short-term)

NATURE OF WORKING CAPITAL MANAGEMENT

The nature of working capital is as discussed below:

 It is used for purchase of raw materials, payment of wages and expenses.

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  It changes form constantly to keep the wheels of business moving.

 Working capital enhances liquidity, solvency, creditworthiness and reputation of firm.

 It generates the elements of cost namely: Materials, wages and expenses.

 It enables the enterprise to avail the cash discount facilities offered by its suppliers.

 It helps improve the morale of business executives and their work efficiency.

 It facilitates expansion programmes of the enterprise and helps in maintaining operational efficiency
of fixed assets.

MERITS AND DEMERITS OF WORKING CAPITAL

MERITS DEMERITS
1. It helps in maintaining the good will and 1. Rate of return on investments also fall
solvency of a business. with the shortage of working capital.
2. It can arrange loans from the banks easily. 2. Excess of working capital may result
into over all inefficiency in organization.
3. It enables a concern to face the business 3. Excess of working capital means idle
crisis in emergencies such as depression. funds which earn no profits.
4. It creates an environment of security, 4. Inadequate working capital cannot pay
confidence and overall efficiency its short term liabilities in time.

4.2 RATIO ANALYSIS:

Ratio analysis is a quantitative analysis of information contained in a company’s financial

statements. Ratio analysis is based on line items in financial statements like the balance sheet, income
statement and cash flow statement; the ratios of one item – or a combination of items - to another item or
combination are then calculated.

DEFINITION:

“Ratio analysis is a study of relationship among the various financial factors in a business.”
- Myers

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 “The systematic use of ratios to interpret the financial statements so that the strengths and weaknesses
of a firm as well as its historical performance and current financial conditions can be determined.”
- Khan and Jain

NATURE OF RATIO ANALYSIS:

Ratio analysis is a technique of analysis and interpretation of financial statements using

various ratios for helping in making certain decisions.

 It is only a means of better understanding of financial strengths and weaknesses of a firm.

 Calculation of mere ratios does not serve any purpose, unless several appropriate ratios are analyzed
and interpreted.
 There are a number of ratios which can be calculated from the information given in the financial
statements.
 The ratios may be used as a symptom like blood pressure, the pulse rate or the body temperature and
their interpretation depends upon the calibre and competence of the analyst.

STEPS INVOLVED IN RATIO ANALYSIS:

The following are the four steps involved in the ratio analysis:
 (i) Selection of relevant data from the financial statements depending upon the objective of the
analysis.
 (ii) Calculation of appropriate ratios from the above data.
 (iii) Comparison of the calculated ratios with ratios of the same firm in the past, or the ratios developed
from projected financial statements or the ratios of some other firms or the comparison with ratios of
the industry to which the firm belongs.
 (iv) Interpretation of the ratios.

CLASSIFICATION OF RATIOS:
1. Liquidity ratios

2. Leverage Ratios

3. Activity ratios

4. Profitability Ratios

A. LIQUIDITY RATIOS:

Liquidity refers of the ability of a firm to meet its obligation in the short run,
usually one year or when they become duration for payment.

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A proper balance between liquidly and profitability is required for efficient financial management.
Liquidity ratios are based on the relationship between current assets the sources for meeting short-term
obligation and current liabilities.

The ratios, which indicate the liquidity of a firm, are: -

1. Current Ratio.

2. Quick Ratio.

3. Cash Ratio

4. Net Working Capital Ratio

1. Current Ratio

The current Ratio is the ratio of current assets to current liabilities it is calculated as: -

Current assets
Current ratio = - - - - - - - - - - - - - - - - - -
Current Liabilities

The current assets include cash and Bank Balance, Marketable securities, Bills Receivable,
Inventories, Loans and advances, Advances Payment and prepaid expenses.

The current liabilities include creditors, bills payable bank overdraft short-term loans, outstanding
expense & income tax payable, unclaimed divided and proposed dividend.

The current ratio measures the ability of the firm to meet its current liabilities. The current assets get
converted into cash in the operational cycle of the firm and provide the fund needed to pay current
liabilities.

2. Quick Ratio

The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of liquidity. It is
figured as shown below:

Current Assets – Inventories

Quick ratio = --------------------------------------------
Current Liabilities

The Quick Ratio is a much more exacting measure than the Current Ratio.

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By excluding inventories, it concentrates on the really liquid assets, with value that is fairly certain. It
helps answer the question: "If all sales revenues should disappear, could my business meet its current
obligations with the readily convertible `quick' funds on hand?"

An acid-test of 1:1 is considered satisfactory unless the majority of your "quick assets" are in accounts
receivable, and the pattern of accounts receivable collection lags behind the schedule for paying current
liabilities.

3. Cash Ratio:

Since cash is the most liquid asset, it may be examined cash ratio and its equivalent to current
liabilities. Trade investment or marketable securities are equivalent of cash; therefore, they may be
included in the computation of cash ratio:

Cash + Marketable Securities

Cash ratio = --------------------------------------------
Current Liabilities

4. Net Working Capital Ratio:

The measure of liquidity is a relationship, rather than the difference between current assets and
current liabilities. NWC, however, measures the firm’s potential reservoir of funds. It can be related to
net assets.

Net Working Capital

Net Working Capital ratio = --------------------------------------------
Net Assets

Net Assets = Fixed Assets+ Net Current Assets

Net Current Assets= Current Assets – Current Liabilities

B. LEVERAGE RATIOS:

To judge the long-term financial position of the firm, financial leverage, or capital structure
ratios are calculated.These ratios indicate mix of funds provided by owners and lenders. As a general rule
there should be an appropriate mix of debt and owners equity in financing the firm’s assets.

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Many variations of these ratios exist; but all these ratios indicate the same thing the extent to which the
firms has relied on debt in financing assets.

1. Debt Asset ratio

2. Debt Equity ratio
3. Capital Gearing ratio
4. Proprietary ratio
1. Debt Asset ratio:
Debt Asset ratio can be computed by dividing total debt by total assets.

Total debt
Debt Asset ratio = --------------------------------------------
Total Assets

2.Debt-Equity ratio:

The relationship describing the lenders contribution for each rupee of the owners’ contribution is
called debt-equity (DE) ratio is directly computed by dividing total debt by net worth:

Total debt
Debt- Equity ratio = --------------------------------------------
Equity
3.Capital Gearing ratio:

Capital gearing is the degree to which a company acquires assets or to which it funds its ongoing
operations with long- or short-term debt. This ratio can be calculated by dividing the sum of debt capital
and preference share capital employed by the equity shareholder’s fund.

Total debt + Total Preference capital

Capital Gearing ratio = --------------------------------------------
Equity

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4.Proprietary ratio:

The proprietary ratio (also known as the equity ratio) is the proportion of shareholders' equity to
total assets, and as such provides a rough estimate of the amount of capitalization currently used to support
a business.

Total equity
Proprietary ratio = --------------------------------------------
Total Assets

C.ACTIVITY RATIOS:

Funds of creditors and owners are interested in various assets to generate sales and profits. The
better the management of assets, the larger the amount of sales. Activity ratios are employed to evaluate
the efficiency with which the firm manages and utilizes its assets. These ratios are also called turnover
ratios because they indicate the speed with which assets are being converted or turned over into sales.
Activity ratios, thus, involves a relationship between sales and assets. A proper balance between sales and
assets generally reflects that assets are managed well. Several activity ratios are calculated to judge the
effectiveness of asset utilization.

1. Debtors (Accounts Receivable) Turnover Ratio:

The receivables turnover ratio indicates the efficiency with which a firm manages the credit it
issues to customers and collects on that credit. Generally, the higher the value of debtors’ turnover, the
more efficient is the management of credit.

Net Sales
Debtor Turnover ratio = --------------------------------------------
Debtors

2. Average Collection Period:

The average number of days for which the debtors remain outstanding is called the Average
Collection Period. The Average Collection Period measures the quality of the debtors since it indicates the
speed of their collection.
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 365
Average Collection Period = --------------------------------------------
Debtor Turnover Ratio

3.Total Assets Turnover:

This ratio shows the firms ability in generating sales from all financial resources committed to
total assets.

Net Sales
Total Asets Turnover ratio = --------------------------------------------
Total Assets

4.Working Capital Turnover Ratio:

Working Capital of a concern is directly related to sales. The current assets like debtors, bills
receivable, cash, and stock etc. change with the increase or decrease in sales. The Working Capital is
taken as:

Working Capital = Current Assets – Current Liabilities

This Ratio indicates the velocity of the utilization of net working capital. This Ratio indicates the
number of times the working capital is turned over in the course of a year.

This Ratio measures the efficiency with which the working capital is being used by a firm. A higher
ratio indicates the efficient utilization of working capital and the low ratio indicates inefficient
utilization of working capital.

Net Sales

Working Capital Turnover ratio = --------------------------------------------

Net Working Capital

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D.PROFITABILITY RATIOS

The profitability ratios are calculated to measure the operating efficiency of the company. Besides
management of the company, creditors and owners are also interested in the profitability of the firm.
Creditors want to get interest and repayment of principal regularly. Owners want to get a required rate of
return on their investment. This is possible only when the company earns enough profits.

The different profitability ratios are

1. Gross Profit Margin ratio

2. Net Profit Margin ratio

3. Operating Profit ratio

4. Return on Equity

5. Return on Capital Employed

6. Earnings Per Dividend

1. Gross Profit Margin ratio:

The first profitability ratio in relation to sales is the gross profit margin. It is calculated by
dividing the gross profit by sales.

Gross profit
Gross Profit Margin ratio = --------------------------------------------
Net Sales

Gross profit is the difference between net sales and cost of goods sold.

2. Net Profit ratio:

Net profit is obtained when operating expenses; interest and taxes are subtracted from the gross
profit margin ratio is measured by dividing profit after tax by sales:\
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 PAT
Net Profit Margin ratio = --------------------------------------------
Net Sales

Net profit ratio establishes a relationship between net profit and sales and indicates and management’s
in manufacturing, administrating and selling the products.

This ratio is the overall measure of the firm’s ability to turn each rupee sales into net profit.

A firm with high net margin ratio would be advantageous position to survive in the face of falling
prices, selling prices, cost of production.

3. Operating Profit Ratio:

The operating profit ratio explains the changes in the profit margin (EBIT to sales) ratio.
This ratio is computed by dividing operating expenses viz., cost of goods sold plus selling expense and
general and administrative expenses (excluding interest) by sales.

EBIT
Operating Profit ratio = --------------------------------------------
Net Sales

4. Return on Equity (ROE)

A return on shareholders equity is calculated to see the profitability of owners’ investment.

The shareholders equity or net worth will include paid-up share capital, share premium, and reserves and

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surplus less accumulated losses. Net worth also be found by subtracting total liabilities from total assets.
The return on equity is net profit after taxes divided by shareholders equity, which is given by net worth:

PAT
Return on Equity = --------------------------------------------
Equity shareholders fund

ROE indicates how well the firm has used the resources of owners.

5. Return on Capital Employed (ROCE):

Return on capital employed (ROCE) is a financial ratio that measures a company's profitability and
the efficiency with which its capital is employed.

EBIT(1-t)
Return on Capital Employed = --------------------------------------------
Total Assets

6. Earnings per Share (EPS)

The profitability of the shareholders investments can also be measured in many other ways. One
such measure is to calculate the earnings per share. The earnings per share (EPS) are calculated by
dividing the profit after taxes by the total number of ordinary shares outstanding.

PAT
Earnings per share = --------------------------------------------
No. of shares outstanding

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 5. DATA ANALYSIS AND INTERPRETATION:

5.1 RATIO ANALYSIS:

The present study was undertaken to find out the financial performance of GSK Consumer
Healthcare Ltd., for the period of five years i.e., from 2011 to 2016. The study gives special picture
regarding the liquidity position, financial leverage position, operating efficiency and also profitability
position of the company through financial ratio analysis.

5.1.1 Liquidity Ratios:

The following liquidity ratios are being covered.

Current Ratio:

Current Current
Assets Liabilities Current
(lakhs) (lakhs) ratio
2011 167009.3 93756.61 1.78
2012 205713.1 110523.46 1.86
2013 275392.9 147660.15 1.87
2014 330541.5 168897.82 1.96
2015 375604.3 181527.82 2.07

Current ratio
2.100

2.000

1.900

1.800 Current ratio

1.700

1.600
2011 2012 2013 2014 2015

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Interpretation:

Current ratio measures the liquidity of the firm and the ideal current ratio is 2:1. The closest ratio to the
ideal value is achieved in 2014 and 2015, while in the rest of the years, the company has maintained
relatively lower current ratio because the current assets are used for investment purpose.

Also the current ratios has increased gradually from 2011 to 2016

Quick ratio:

Quick Current Quick

Assets Liabilities ratio
(lakhs) (lakhs)
2011 130013.7 93756.61 1.390
2012 168749.5 110523.46 1.530
2013 234651 147660.15 1.590
2014 283916.4 168897.82 1.680
2015 329442.1 181527.82 1.820

Quick ratio
2.000
1.800
1.600
1.400
1.200
1.000
Quick ratio
0.800
0.600
0.400
0.200
0.000
2011 2012 2013 2014 2015

Interpretation:

Quick measure is the measure of immediate ability of the company to pay off its current liabilities.

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An ideal quick ratio is said to be 1:1. The company is maintaining a good quick ratio throughout as the
quick ratio for the past 5 years was always greater than 1:1

Cash Ratio:

Current
Cash Liabilities
(lakhs) (lakhs) Cash ratio
2011 107965.4 93756.61 1.150
2012 146424.3 110523.46 1.330
2013 183878.4 147660.15 1.250
2014 229652.1 168897.82 1.360
2015 271226.7 181527.82 1.490

Cash ratio
1.600
1.400
1.200
1.000
0.800
Cash ratio
0.600
0.400
0.200
0.000
2011 2012 2013 2014 2015

Interpretation:

The cash ratio establishes relationship between absolute liquid assets and current liabilities. As a
conventional rule the cash ratio 1:2 or more is considered satisfactory. The cash ratios for 2011 to 2016 are
always greater than this ideal ratio which shows the good performance of the company.

Net Working Capital Ratio:

Net Net
Working Net Working
Capital Assets Capital
(lakhs) (lakhs) ratio
2011 73252.7 110428.29 0.663
2012 95189.63 144925.73 0.657
2013 127732.7 193486.76 0.660
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 2014 161643.7 233057.1 0.694
2015 194076.5 268352.2 0.723

Net Working Capital ratio

0.740
0.720
0.700
0.680 Net Working Capital
ratio
0.660
0.640
0.620
2011 2012 2013 2014 2015

Interpretation:
From the above analysis, the net working capital ratio has decreased from 2011 to 2013 and then started to
increase in 2014 and 2015. This increase in the ratio shows that GSK has started to maintain good amount
of net working capital to perform its regular activities.

5.1.2 Leverage Ratios:

The leverage ratios being covered are as follows

Debt Asset Ratio:

Debt Assets Debt Asset

(lakhs) (lakhs) ratio
2011 93756.61 204184.9 0.459
2012 119351.45 255449.19 0.467
2013 159861.98 341146.91 0.469
2014 190651.22 401954.92 0.474
2015 205316.77 449880.02 0.456

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 Debt Asset ratio
0.480
0.475
0.470
0.465
0.460 Debt Asset ratio
0.455
0.450
0.445
2011 2012 2013 2014 2015

Interpretation:

The debt to total assets ratio is an indicator of financial leverage. The Debt-asset ratio has increased
continuously from 2011 to 2014 but again it decreased by a relatively higher value in 2015. Higher the
ratio, higher is the financial risk. So the company has reduced its financial risk in 2015.

Capital Gearing Ratio:

(Preference+ Debt Total

capital) equity Capital
(lakhs) (lakhs) Gearing ratio
2011 93756.61 114417.26 0.819
2012 119351.45 136097.74 0.877
2013 159861.98 181284.93 0.882
2014 190651.22 211303.7 0.902
2015 205316.77 244563.25 0.840

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 Capital Gearing ratio
0.920
0.900
0.880
0.860
0.840
Capital Gearing ratio
0.820
0.800
0.780
0.760
2011 2012 2013 2014 2015

Interpretation:

The capital gearing ratios for all the 5 years is less than 1 indicating that the company is highly geared i.e
the proportion of common stockholders fund is higher in the total liabilities.

The ratio has increased from 2011 to 2014 and then decreased in 2015.

Proprietary ratio:

Total
Net Worth Assets Proprietary
(lakhs) (lakhs) ratio
2011 114417.26 204184.9 0.560
2012 136097.74 255449.19 0.533
2013 181284.93 341146.91 0.531
2014 211303.7 401954.92 0.526
2015 244563.25 449880.02 0.544

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 Proprietary ratio
0.570
0.560
0.550
0.540
0.530 Proprietary ratio
0.520
0.510
0.500
2011 2012 2013 2014 2015

Interpretation:

This ratio establishes a relationship between owner’s funds and total assets. The ratio has decreased from
2011 to 2014 and then increased in 2015. All the ratios are less than 1 implying that the shareholders fund
is always lesser than the total assets.

5.1.3 Activity Ratios:

Debtors (Accounts Receivable) Turnover Ratio:

Credit
Sales Debtors
(lakhs) (lakhs) Debtors Turnover ratio
2011 268550.6 9919.07 27.074
2012 318749.36 11261.44 28.304
2013 486857.16 29934.58 16.264
2014 430758.52 31336.08 13.746
2015 430872.75 35416.17 12.166

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 Debtors Turnover ratio
30.000

25.000

20.000

15.000
Debtors Turnover ratio
10.000

5.000

0.000
2011 2012 2013 2014 2015

Interpretation:

The higher the value of debtors’ turnover, the more efficient is the management of credit. In this context,
the credit management of GSK has improved from 2011 to 2012 but later decreased continuously from
2012 to 2015.

Average Collection Period:

Average Collection Period

(days)
2011 14
2012 13
2013 23
2014 27
2015 31

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 Average Collection Period
35
30
25
20
15 Average Collection Period
10
5
0
2011 2012 2013 2014 2015

Interpretation:

The average collection period is the approximate amount of time that it takes for a business to receive
payments owed in terms of accounts receivable. The average collection period has slightly decreased in
2012 and then increased continuously till 2015. This increase indicates that the company follows lenient
credit policy.

Total Assets Turnover:

Net Sales Total Assets Total Assets Turnover

(lakhs) (lakhs) ratio
2011 268550.6 204184.9 1.315
2012 318749.36 255449.19 1.248
2013 486857.16 341146.91 1.427
2014 430758.52 401954.92 1.072
2015 430872.75 449880.02 0.958

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 Total Assets Turnover ratio
1.600
1.400
1.200
1.000
0.800 Total Assets Turnover
0.600 ratio
0.400
0.200
0.000
2011 2012 2013 2014 2015

Interpretation:

The total assets turnover ratio can often be used as an indicator of the efficiency with which a company is
deploying its assets in generating revenue. This ratio is highest in 2013 and least in 2015. There were non-
uniform fluctuations in the ratio over the past 5 years.

Working Capital Turnover Ratio:

Net Working
Net Sales Capital Working Capital Turnover
(lakhs) (lakhs) ratio
2011 268550.6 73252.7 3.666
2012 318749.36 95189.63 3.349
2013 486857.16 127732.71 3.812
2014 430758.52 161643.72 2.665
2015 430872.75 194076.47 2.220

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 Working Capital Turnover ratio
4.500
4.000
3.500
3.000
2.500
Working Capital Turnover
2.000
ratio
1.500
1.000
0.500
0.000
2011 2012 2013 2014 2015

Interpretation:

The working capital turnover ratio measures the relationship between the sales and working capital. The
ratio shows number of times the working capital results in sales. The ratio was highest in 2013 and least in
2015. GSK has managed to maintain sales atleast double the value of working capital.

Inventory Turnover ratio:

COGS(lakhs) Inventory (lakhs) Inventory Turnover ratio

2011 128109.92 36995.58 3.463
2012 145296.65 36963.55 3.931
2013 220964.2 40741.86 5.424
2014 193041.87 46625.11 4.140
2015 185293.86 46162.21 4.014

Inventory Turnover ratio

6.000

5.000

4.000

3.000
Inventory Turnover ratio
2.000

1.000

0.000
2011 2012 2013 2014 2015

Page 41 of 66
Interpretation:

Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a
period of time. The ratio is highest in 2013 while it is least in 2011. The ratio has increased from 2011 to
2013 and then decreased till 2015.

5.1.4 Profitability Ratios:

Gross Profit ratio:

Gross Gross
Profit Net Sales Profit
(lakhs) (lakhs) ratio
2011 136040.6 268550.6 0.507
2012 173452.7 318749.36 0.544
2013 286583.9 486857.16 0.589
2014 259905.3 430758.52 0.603
2015 273453.4 430872.75 0.635

Gross Profit ratio

0.700
0.600
0.500
0.400
0.300 Gross Profit ratio
0.200
0.100
0.000
2011 2012 2013 2014 2015

Interpretation:

The table shows that the gross profit margin ratio fluctuating in every year due to change in the sales and
change in gross profit margin because of high operating expenses.
The ratio increased continuously from 2011 to 2015.

Page 42 of 66
Net Profit ratio:
Net
PAT Net Sales Profit
(lakhs) (lakhs) ratio
2011 35520.69 268550.6 0.132
2012 43675.58 318749.36 0.137
2013 67474.68 486857.16 0.139
2014 58359.93 430758.52 0.135
2015 68691.49 430872.75 0.159

Net Profit ratio

0.180
0.160
0.140
0.120
0.100
0.080 Net Profit ratio
0.060
0.040
0.020
0.000
2011 2012 2013 2014 2015

Interpretation:
This ratio reveals the remaining profit after all costs of production, administration, and financing have
been deducted from sales, and income taxes recognized. The ratio has increased annually upto 2015
indicating the increasing proportion of profits with respect to net sales.

Operating Profit Ratio:

Operating
EBIT Net Sales Profit
(lakhs) (lakhs) ratio
2011 54026.1 268550.6 0.201
2012 64868.9 318749.36 0.204
2013 101607.2 486857.16 0.209
2014 88914.3 430758.52 0.206
2015 105539.7 430872.75 0.245

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 Operating Profit ratio
0.300

0.250

0.200

0.150
Operating Profit ratio
0.100

0.050

0.000
2011 2012 2013 2014 2015

Interpretation:
This ratio shows the efficiency of a company controlling the costs and expenses associated with business
operations.
The operating profit ratio was approximately same from 2011 to 2014. Only in 2015 the ratio has
increased indicating the better operations management.

Return on Capital Employed (ROCE)

PBIT(1- Total
t) (lakhs) Assets(lakhs) ROCE
2011 35520.69 204184.9 0.174
2012 43675.58 255449.19 0.171
2013 67474.68 341146.91 0.198
2014 58359.93 401954.92 0.145
2015 68691.49 449880.02 0.153

ROCE
0.250

0.200

0.150
ROCE
0.100

0.050

0.000
2011 2012 2013 2014 2015

Page 44 of 66
Interpretation:
This ratio measures how efficiently a company can generate profits from its capital employed. Higher
ROCE is always preferable. The ratio was highest in 2013 and least in 2014.

Return on Equity (ROE)

PAT Equity
(lakhs) (lakhs) ROE
2011 35520.69 114417.26 0.310
2012 43675.58 136097.74 0.321
2013 67474.68 181284.93 0.372
2014 58359.93 211303.7 0.276
2015 68691.49 244563.25 0.281

ROE
0.400
0.350
0.300
0.250
0.200
ROE
0.150
0.100
0.050
0.000
2011 2012 2013 2014 2015

Interpretation:

This ratio is calculated to see the profitability of equity shareholders. Higher ROE is preferred by
shareholders during investment. ROE is highest in 2013. ROE has increased from 2011 to 2013 and then
decreased in 2014 and 2015.

Earnings per Share (EPS):

EPS (Rs)
2011 84.46
2012 103.85
2013 160.44
Page 45 of 66
 2014 138.77
2015 163.34

EPS
180
160
140
120
100
80 EPS
60
40
20
0
2011 2012 2013 2014 2015

Interpretation:

Higher earnings per share ratio often make the stock price of a company rise. The higher the stock price,
the higher is the strength of the company. The EPS has increased continuously from 2011 to 2015 except
in 2014.

5.2 WORKING CAPITAL ANALYSIS:

Changes in Working Capital Position for year 2011 (Rs. In Lakhs)

Previous year Current year Increase Decrease

Particulars
2010 (In Lakhs) 2011 (In Lakhs)
CURRENT ASSETS:

Inventory 31200.06 36995.58 5795.52

Sundry debtor’s 5053.34 9919.07 4865.73
Cash & bank bal 97609.83 107965.44 10355.61
Other current assets 3438.96 4915.64 1476.68
Loans & advances 5010.73 7213.58 2202.85

TOTAL CURRENT 142312.92 167009.31

ASSETS

Page 46 of 66
 CURRENT LIABILITIES:

Sundry creditors 35692.46 48818.40 13125.94

Other liabilities 7864.61 11225.51 3360.9
Advances from customers 272.97 740.51 467.54
Unclaimed dividend 120.25 177.51 57.26
Trading security deposits 3086.44 4385.75 1299.31
Provisions 33003.65 27124.85 5878.8
TOTAL CURRENT 80040.38 92472.53
LIABILITIES
NET WORKING 62272.54 74536.78
CAPITAL

Increase in working Capital 12264.24 12264.24

TOTAL 74536.78 74536.78 30575.19 30575.19

Interpretation:

In the above statement shows that changes in working capital in the year 2010-11.

 Net working capital of 2010 -2011, Rs 62272.54 & 74536.78 Lakhs respectively.
 The working capital increased Rs 12264.24 Lakhs in 2011 compared to 2010.

Current Assets Increase/ Rs. In Current Liabilities Increase/ Rs. In

Decrease Lakhs Decrease Lakhs
Inventories increased 5795.52 Creditors decreased 13125.94
loan and adv. increased 2202.85 other liabilities decreased 3360.9
Debtors increased 4865.73 Adv. from customers decreased 467.54
Cash and bank bal. increased 10355.61 Trade Security Dep. decreased 57.26
other current assets increased 1476.68 unclaimed dividends decreased 1299.3
Provisions increased 5878.8

Page 47 of 66
Changes in Working Capital Position for year 2012 (Rs. In Lakhs)
Previous year Current year
Particulars Increase Decrease
2011 (In Lakhs) 2012 (In Lakhs)
CURRENT ASSETS:

Inventory 36995.58 36963.55 32.03

Sundry debtor’s 9919.07 11261.44 1342.37
Cash & bank bal 107965.44 146424.26 38458.82
Other current assets 4915.64 4383.26 532.38
Loans & advances 7213.58 6680.58 533

TOTAL CURRENT 167009.31 205713.09

ASSETS

CURRENT LIABALITIES:

Sundry creditors 48818.40 47843.75 974.65

Other liabilities 11225.51 28444.11 17218.6
Advances from customers 740.51 871.40 130.89
Unclaimed dividend 177.51 224.87 47.36
Trading security deposits 4385.75 5608.54 1222.79
Provisions 27124.85 27530.79 405.94

TOTAL CURRENT 92472.53 110523.46

LIABILITIES
NET WORKING 74536.78 95189.63
CAPITAL

Increase in working Capital 20652.85 20652.85

TOTAL 95189.63 95189.63 40775.84 40775.84

Interpretation:

In the above statement shows that changes in working capital in the year 2011-12.

 Net working capital of the two years is 2011 -2012, Rs74536.78 & Rs 95189.63 Lakhs.
 The working capital increase Rs 20652.85 Lakhs in 2012 compared to 2011.

Increase/ Rs. In Increase/ Rs. In

Current Assets Current Liabilities
Decrease Lakhs Decrease Lakhs
Debtors increased 1342.37 Creditors increased 974.65
cash and bank bal. increased 38458.82 Other liabilities decreased 17218.6
Page 48 of 66
 Inventories decreased 32.03 Adv. from customers decreased 130.89
other current assets decreased 532.38 trade security Dep. decreased 1222.79
loans and advances decreased 533 unclaimed dividends decreased 47.36
provisions decreased 405.94

Changes in Working Capital Position for FY 2012-14 (Rs. In Lakhs)

Previous year Current year

Particulars Increase Decrease
2012 (In Lakhs) 2014 (In Lakhs)
CURRENT ASSETS:

Inventory 36963.55 40741.86 3778.31

Sundry debtor’s 11261.44 29934.58 18673.14
Cash & bank bal 146424.26 183878.35 37454.09
Other current assets 4383.26 13291.51 8908.25
Loans & advances 6680.58 7546.56 865.98

TOTAL CURRENT 205713.09 275392.86

ASSETS
CURRENT LIABILITIES:

Sundry creditors 47843.75 67159.06 19315.31

Other liabilities 28444.11 44257.25 15813.14
Advances from customers 871.40 586.18 285.22
Unclaimed dividend 224.87 275.59 50.72
Trading security deposits 5608.54 7247.22 1638.68
Provisions 27530.79 28134.85 604.06
TOTAL CURRENT 110523.46 147660.15
LIABILITIES
NET WORKING 95189.63 127732.71
CAPITAL

Increase in working Capital 32543.08 32543.08

TOTAL 127732.71 127732.71 69964.99 69964.99

*The financial year for the accounting period 2012-2013 has been changed to 15 months, i.e., from 2012
JAN to 2014 MAR

Interpretation:

In the above statement shows that changes in working capital in the year 2012-14.

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  Net working capital of the two years is 2012-2014, Rs 95189.63 & 127732.71 Lakhs.
 The working capital increase Rs 32543.08 Lakhs in 2014 compared to previous years.

Increase/ Rs. In Increase/ Rs. In

Current Assets Current Liabilities
Decrease Lakhs Decrease Lakhs
Inventories increased 3778.31 Adv. from customers increased 285.22
Debtors increased 18673.14 Creditors decreased 19315.31
cash and bank bal. increased 37454.09 other liabilities decreased 15813.14
other current assets increased 8908.25 unclaimed dividends decreased 50.72
loans and advances increased 865.98 Trade security Dep. decreased 1638.68
provisions decreased 604.06

Changes in Working Capital Position for FY 2015-16(Rs. In Lakhs)

Previous year Current

Particulars 2015 year 2016 Increase Decrease
(In Lakhs) (In Lakhs)
CURRENT ASSETS:

Inventory 46625.11 46162.21 462.9

Trade receivables 31336.08 35416.17 4080.09
Cash & bank bal 229652.05 271226.68 41574.63
Other current assets 14403.51 14550.58 147.07
Loans & advances 8524.79 8248.65 276.14

TOTAL CURRENT 330541.54 375604.29

ASSETS
CURRENT
LIABILITIES:
1843.06 1326.61 516.45
Total Outstanding dues
(Micro & small enterprises) 74134.73 77191.51 3056.78
Total outstanding dues of
creditors (other than micro
& small enterprises) 53112.99 57532.85 4419.86
Other liabilities 39513.52 45476.85 5963.33
Short term Provisions

TOTAL CURRENT 168604.30 181527.82

LIABILITIES

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 NET WORKING 161937.24 194076.47
CAPITAL

Increase in working Capital 32139.23 32139.23

TOTAL 194076.47 194076.47 46318.24 46318.24

Interpretation:

In the above statement shows that changes in working capital in the year 2015-16.

 Net working capital of 2015-2016 is, Rs 161937.24 & 194076.47 lakhs.

 The working capital increase Rs 32139.23 lakhs in 2016 compared to previous years.

Increase/ Rs. In Increase/ Rs. In

Current Assets Current Liabilities
Decrease Lakhs Decrease Lakhs
Inventories decreased 462.9 Tot. O/s dues (M&S) increased 516.45
Trade receivables increased 4080.09 Tot. O/s dues Cr. decreased 3056.78
cash and bank bal. increased 41574.63 other liabilities decreased 4419.86
other current assets increased 147.07 Short term Provisions decreased 5963.33
loans and advances decreased 276.14

5.3 OPERATING CYCLE ANALYSIS:

Operating
DIO DSO DPO cycle(days)
2011 106 14 143 -23
2012 93 13 121 -15
2013 68 23 111 -20
2014 89 27 144 -28
2015 91 30 155 -34

DIO: Days Inventory Outstanding

DSO: Days Sales Outstanding
DPO: Days Payable Outstanding

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 Operating Cycle (Days)
40
35
30
25
20
Operating Cycle (Days)
15
10
5
0
2011 2012 2013 2014 2015

Note: The –ve sign indicates that the operating cycle is negative and has been omitted for better
comparison in the graph

Interpretation:

 The lower the cash cycle the better it looks for a company’s finances, so a negative cash cycle is
very desirable.
 The company has maintained negative operating cycle in the past five years.
 This indicates that GSKCH doesn’t pay for its inventory or materials until it has sold the final
product associated with them.
 The company is using its working capital efficiently as much as possible and have available cash
for other purposes as well.
 From the graph, it can be observed that the operating cycle has decreased from 2011 to 2012 and
then increased from 2013 to 2015. This shows that the company has undertaken major changes in
its working capital management which has improved the working of the company.
 The major reason for higher negative operating cycle was the increase in the Days Payable
Outstanding, which gave a greater period for the company to pay for its purchases.

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 6. FINDINGS AND RECOMMENDATIONS:
6.1 FINDINGS:

 The current ratio of the company was less than the ideal 2:1 ratio.
 The cash ratios and quick ratios were very well maintained.
 The net working capital is maintained at a good level which is indicated by the net working capital
ratio.
 The company has lowered its financial risk in 2015 as observed from the debt asset ratio.
 The other leverage ratios indicate that the shareholders fund forms a relatively higher proportion in
the total liability of the company.
 The efficiency of GSK’s credit management seems to be fluctuating as shown by the varying
Debtors Turnover Ratio values.
 The company follows a lenient credit policy as indicated by the increasing Average Collection
Period by the end of FY 2015-16.
 The profitability ratios imply that the company is in a good financial position.
 The firm’s profitability is shown by the increasing gross profit, net profit and operating profit ratios.
 The capital employed was also efficiently utilized as shown by the Return On Capital
Employed(ROCE) values.
 The Return On Equity and Earnings Per Share values shows that the investors are also being
benefitted by GSKCH.
 The working capital was increased throughout the 5 year span indicating good The operating cycle
values have been increasing continuously which shows that the company has constantly tried to
improve its relationship with its customers and suppliers.

6.2 RECOMMENDATIONS:

 GSKCH seems to have a higher financial risk in the last two years. The company need to take this
aspect into account and lower its risk.
 The following steps can be taken to improve the debt asset ratio

--Additional Stock Issue: The company can issue new or additional shares to increase the cash flow.
This cash can be used to repay the existing liabilities and in turn, reduce the debt burden. The
reduction in debt will lower the debt to total asset ratio.
--Lease Assets: The company can sell its assets and then lease them back. This will induce a cash
flow that can be used to pay off some debts.

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 --Increase the sales: The company can focus heavily on increasing the sales but without any
increase in overhead expenses. The increase in sales can be used to reduce the debt and improve the
debt to total asset ratio.
 The company needs to improve its credit policy as its collection period has increased in 2015.
 GSKCH can improve its credit policy by the following means

--Defined Credit Policies: Design and document clear credit policies and encourage adherence of
the same to reduced instances of delays in collection. A frequent revisit and modification of the
policies will help adjust to the new environment.
--Collection Efficiency: Increase efficiency of the collections from debtors; some of it can be done
by a dedicated team force. Insisting for a post-dated cheque, timely reminders etc. can help in
aiding faster collection.

-- Offer Discounts for early payments: Designing discount structure for debtors who pay earlier
than the credit period sanctioned will motivate some debtor’s payments to clear faster. The
discounts can be designed keeping in mind the business’ return on investment or cost of short-term
liability.

-- Reward Timely Payments: Rewarding debtors who have a history of timely payments will ensure
timely or earlier payments by those debtors going forward.

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 7. CONCLUSION:

When a company does not have enough working capital to cover its obligations, financial insolvency can
result and lead to legal troubles, liquidation of assets and potential bankruptcy. Thus, it is vital to all
businesses to have adequate working capital management.
The level of working capital at GSK has been satisfactory as both excessive and inadequate positions are
bad for the business.
If properly analyzed and interpreted financial statements can provide valuable insights into a company’s
financial performance.
The liquidity ratio of GSK Ltd indicates a raising trend and satisfies conventional rule 2:1 which implies
that more funds are being allocated for working capital.
GSK has maintained its operating cycle at an efficient level and is always negative. Also, GSK is having
its own godown for the maintanence of its inventory and so it doesn’t have any rental expenses. Therefore
the company is operating efficiently.

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 8. REFERENCES:

Websites:
 http://india-consumer.gsk.com/
 http://www.investopedia.com/terms
 https://efinancemanagement.com
 www.nutraingredients-asia.com/Markets
 http://www.businesswire.com/news/home/20160608005814/en/India-Malted-Health-
Drinks-Market-Overview--
 http://www.marketreportsonindia.com/food-beverages-market-research-reports-
13827/malted-health-drinks-india.html

Textbooks:
 Financial Management by Prasanna Chandra
 Financial Management by M Y Khan & P K Jain

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9. ANNEXURE

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