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Working Capital Management of Indian FMCG Companies: A Conceptual Analysis

Management of Working Capital is one of the most important functions of corporate management. Every organization whether public or private, profit oriented or not, irrespective of its size and nature of business, needs adequate amount of working capital. The efficient working capital management is most crucial factor in maintaining survival, liquidity, solvency and profitability of the any business organization. As working capital is defined as current assets over current liabilities, at the time of determination of working capital, quality of current assets especially size of debtors and inventory are important factors. Significance of working capital also increases, as it is directly associated to the liquidity position of the corporate. However, in some cases, current assets are lower as compared to current liabilities (known as negative working capital) then how can a firm manage the level of liquidity? Negative working capital arises in cash base business, efficient utilization of resources and sound inventory management etc., which leads to minimum stock of inventory etc., and the overall impact is lower level of current assets. On the other hand, due to better contract and negotiations to the creditors and suppliers, they are extending more liberal credit, which enhances the level of current liabilities. Study of negative working capital is important to understand the efficiency of the corporate, which enhances the earning capacity. Keeping in view the significance of working capital management as a gray area of corporate finance function, an attempt has been made to examine the working capital trends and practices particularity in FMCGs sector in India by selecting top two FMCG companies (named as Hindustan Unilever Limited, Nestle India Limited). The study is based on secondary data i.e. Annual Reports of the selected companies. The period of study is ten years and traditional method of data analysis and ratio analysis as tools of financial statement analysis for examine the degree of efficiency of working capital management has been adopted. Finally, it is found that companies in which negative working capital exist, profitability is more and shareholders are getting more dividend and capital appreciation, which maximizes the shareholders’ value in the long run.