TABLE OF CONTENT

TABLE OF CONTENT...............................................................................................................................1

LIST OF TABLES AND CHARTS............................................................................................................3

CHAPTER I................................................................................................................................................4

INTRODUCTION.......................................................................................................................................4

1.1 Background.......................................................................................................................................4

1.2 Details about the two companies.......................................................................................................5

1.3 The problem statement to be analyzed in this study is:......................................................................6

1.4 Objectives..........................................................................................................................................6

1.4.1 General Objective.......................................................................................................................6

1.4.2 Specific Objective.......................................................................................................................6

1.5 Limitations of the study.....................................................................................................................7

CHAPTER II...............................................................................................................................................8

LITERATURE REVIEW............................................................................................................................8

2.1 Literature Review..............................................................................................................................8

CHAPTER III............................................................................................................................................10

RESEARCH METHODOLOGY..............................................................................................................10

3.1 Study Area and Rationale for selection/ Data Set and Sample.........................................................10

3.2 Nature and Source of Data...............................................................................................................10

3.3 Data Analysis and Interpretation.....................................................................................................10

3.4 Ethical Consideration.......................................................................................................................11

3.5 Variables....................................................................................................................................11

CHAPTER IV...........................................................................................................................................13

DATA PRESENTATION AND ANALYSIS...........................................................................................13

4.1 Comparisons between Two Multinational Companies on the basis of Available Ratios..................13

4.1.1 Comparison on the basis of Current Ratio................................................................................13

4.1.2 Comparisons on basis of Quick Ratio.......................................................................................14

4.1.3 Comparisons on the basis of Return on Assets (ROA)..............................................................15

4.1.4 Comparisons on the basis of Return on Equity (ROE)..............................................................16

4.1.5 Comparison on the basis of Debt Ratio.....................................................................................17

4.1.6 Comparisons on the basis of Inventory period..........................................................................18

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4.1.7 Comparisons on the basis of Account Payable Period..............................................................19

4.1.8 Comparisons on the basis of Account Receivable Period.........................................................20

4.1.9 Comparisons on the basis of Cash Conversion Cycle...............................................................21

4.1.10 Comparisons on the basis of Size of the Firm.........................................................................22

4.2 Descriptive Statistics.......................................................................................................................23

4.2.1 Descriptive Statistics of Dabur Nepal.......................................................................................23

4.2.2 Descriptive statistics of Bottlers Nepal.....................................................................................24

4.3 Correlation analysis.........................................................................................................................25

4.3.1 Correlation analysis of bottlers Nepal.......................................................................................25

4.3.2 Correlation analysis of Dabur Nepal.........................................................................................26

4.4 Regression analysis I.......................................................................................................................27

4.4.1 Regression analysis I of Dabur Nepal.......................................................................................27

4.4.2 Regression analysis I of Bottlers Nepal....................................................................................28

4.5 Regression analysis II......................................................................................................................29

4.5.1 Regression analysis II of Dabur Nepal......................................................................................29

4.5.3 Regression analysis II of Bottlers Nepal...................................................................................30

CHAPTER V.............................................................................................................................................31

SUMMARY AND CONCLUSIONS........................................................................................................31

5.1 Conclusions.....................................................................................................................................31

References.................................................................................................................................................32

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LIST OF TABLES AND CHARTS

Table no: 1 Comparison on the basis of Current Ratio..............................................................................14

Table no: 2 Comparisons on basis of Quick Ratio.....................................................................................15

Table no: 3 Comparisons on basis of Return on Assets (ROA).................................................................16

Table no: 4 Comparisons on basis of Return on Equity (ROE).................................................................17

Table no: 5 Comparisons on basis of Debt Ratio.......................................................................................18

Table no: 6 Comparisons on basis of Inventory period..............................................................................19

Table no: 7 Comparisons on basis of Account Payable Period..................................................................20

Table no: 8 Comparisons on basis of Account Receivable Period.............................................................21

Table no: 9 Comparisons on basis of Cash Conversion Cycle...................................................................22

Table no: 10 Comparisons on basis of Size of the Firm............................................................................23

Table no: 11 Descriptive Statistics of Dabur Nepal

Table no: 12 Descriptive statistics of Bottlers Nepal

Table no: 13 Correlation analyses of bottlers Nepal

Table no: 14 Correlation analyses of Dabur Nepal

Table no 15: Regression analysis I of Dabur Nepal

Table no: 16 Regression analysis I of Bottlers Nepal

Table no: 17 Regression analyses II of Dabur Nepal

Table no: 18 Regression analyses II of Bottlers Nepal.....................................................................

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CHAPTER I

INTRODUCTION

1.1 Background

This paper examines and compares the relationship between the working capital management

and profitability among two Multinational companies Bottlers Nepal Limited (Balaju) and Dabur

Nepal. The management of working capital is very essential as it directly affects the profitability

of a firm. Working capital management refers to efficient utilization of funds which leads to

sufficient cash flow in order to meet its short-term debt obligations and operating expenses.

Working capital is a financial metric which represents operating liquidity available to a business,

organization or other entity, including governmental entity. Along with fixed assets such as plant

and equipment, working capital is considered a part of operating capital. Net working capital is

calculated as current assets minus current liabilities. It is a derivation of working capital, which

is commonly used in valuation techniques such as DCFs. If current assets are less than current

liabilities, an entity has a working capital deficiency, also called a working capital deficit.

A manufacturing company like Bottlers Nepal and Dabur Nepal can be endowed with assets

and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive

working capital is required to ensure that a firm is able to continue its operations and that it has

sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.

The management of working capital involves managing inventories, accounts receivable and

payable, and cash.

The main objective of any firm is to maximize the profit. However, maintaining liquidity is also

an important objective of the firm. The problem is that increasing profit at the cost of liquidity

creates problems to the organization. Therefore, there must be a tradeoff between these two

objectives of the firm. If we pay no attention to profit, we cannot survive for a longer period. On

the other hand, if we ignore liquidity, we may face the problem of insolvency and bankruptcy.

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For these reasons working capital management should be given proper consideration and will

ultimately affect the profitability of the firm.

Working Capital Management is concerned with the problems that arise in attempting to manage

the Current Assets, Current Liabilities and the interrelationship that exists between them

Working Capital Management means the deployment of current assets and current liabilities

efficiently so as to maximize short-term liquidity. Working capital management entails short

term decisions - generally, relating to the next one year period - which is "reversible"

Two Steps involved in the Working Capital Management:

(i) Forecasting the Amount of Working Capital

(ii) Determining the Sources of Working Capital

1.2 Details about the two companies

Dabur Nepal private limited was set up as in independent group company in 1992. This new

company, set amidst the verdant greens and towering mountains of the Himalayan kingdom of

Nepal has established a unique bond of technology and preservation. Limited has marked it

presence with significant achievements and today commands a market leadership status. Their

story of success is based on dedication to nature, corporate and process hygiene, dynamic

leadership and commitment to our partners and stakeholders. The results of their policies and

initiatives speak for themselves. They have the two major strategic business units (SBU)

- Consumer Care Business and International Business Division (IBD).

Bottlers Nepal was first introduced into Nepal in 1973, when it was imported from India, but

local production would only begin in 1979, with the establishment of Bottlers Nepal Limited

(BNL). Coca-Cola and other products acquired bottling rights from The Coca-Cola Company for

Nepal in 2004.The Marketing, Sales and Distribution strategy for Bottlers Nepal is titled

‘Refresh the Marketplace’ and includes a robust Consumer Response System to address any

consumer concerns, ideas and suggestions. Bottlers Nepal is also committed to strengthening the

community through various programmers, particularly in the health sector, as the country has the

lowest per capita public health expenditure in the world

This discussion of the importance of working capital management, its different components and

its effects on profitability leads us to the problem statement which we will be analyzing.

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1.3 The problem statement to be analyzed in this study is:

“WHICH OF THE TWO MULTINATIONAL COMPANIES ARE THE MOST

PROFITABLE COMPANIES AND ARE BETTER PERFORMING?”

Manufacturing industries play a vital role in improvising the economy of a nation. In Nepal,

there have been quite a few manufacturing companies which have been doing well in the past

years and Dabur Nepal and Bottlers Nepal are two of them. But, these manufacturing companies

have not been researched on properly. So, I felt that by carrying out this research, I would be

able to find out how well the company is balancing its leverage, liquidity and profitability as in

total all the components of working capital, which will help to analyze the financial position of

other related firms as well.

1.4 Objectives

1.4.1 General Objective

The general objective behind this study is for the Partial fulfillment of the degree BBA-

BI as prescribed by the Pokhara University.

1.4.2 Specific Objective

The specific objectives of this study are; To explore the comparisons between two multinational companies.

To know which is the fast growing multinational companies in Nepal among these two.

To examine relationship between working capital management and profitability.

To find out effects of different components of working capital management on

profitability.

To compare the two largest multinational companies operating in Nepal in terms of their

components of profitability.

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1.5 Limitations of the study

This study may not be taken as the ultimate solution to the issue being discussed as it possesses

few limitations. Though the study is intended to have high importance, the study also suffers

from the following limitations:

The sample size may not be representative or large enough to generalize for the total

manufacturing industry in Nepal; this study was meant to be more meaningful if more

samples would have been considered.

Since the study would be carried out within a short duration, it may not have that exact

implication for planning and other processes in future. The efforts, resources and

expertise are all within certain constraints because it has to be done within a very limited

time, along with efforts to accomplish several other responsibilities of the researcher

While measurement of single variables is somewhat simpler, it fails to provide adequate

explanation of the causes of satisfaction at work.

The study was only a preliminary study to analyze the trend of working capital in

manufacturing industries that were listed in Nepal stock exchange. Only two firms were

taken into account whereas one could opt to go with few more as well. Also the variables

used were very less.

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CHAPTER II

LITERATURE REVIEW

2.1 Literature Review

(Atrill, 2006). Working capital management is a very important component of corporate finance

because it directly affects liquidity, profitability and growth of a business and is important to the

financial health of business of all sizes as the amounts invested in working capital are high in

proportion to the total assets employed. (Deloof, 2003) discussed that most firms had a large

amount of cash invested in working capital. It can therefore be expected that the way in which

working capital is managed will have a significant impact on profitability of those firms. He

found out that there is a significant negative relationship between gross operating income and

the number of days accounts receivable, inventories and accounts payable of Belgian firms. On

basis of these results he suggested that managers could create value for their shareholders by

reducing the number of days’ accounts receivable and inventories to a reasonable minimum. The

negative relationship between accounts payable and profitability is consistent with the view that

less profitable firms wait longer to pay their bills.

(Shin & Soenen, 1998) highlighted that efficient Working Capital Management (WCM) was

very important for creating value for the shareholders. The way working capital was managed

had a significant impact on both profitability and liquidity. They found a strong negative

relationship between lengths of the firm’s net trading Cycle and its profitability.

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On the other hand, other researchers support that investing more in CCC (conservative policy)

may lead to increased profitability since maintaining high inventory levels is expected to

increase sales, enhance smooth operation, reduce supply costs, reduce cost of possible

interruption in production and protect against price fluctuations (Blinder, A.S. and Maccini, L.J.

(1991). A higher debtor's collection period may also strengthen the relationship with customers

and hence may lead to increase in sales revenue (Ng, Smith, & Smith, 1999). Deloof, M. (2003)

showed that a relatively huge amount of firms' assets are reserved for working capital. Summers

& Wilson, 2000) also stated that more than 80% of the daily business transactions in the UK

corporate sector is on credit terms.

All the above studies provide us a solid base and give us idea regarding working capital

management and its components. They also give us the results and conclusions of those

researches already conducted on the same area for different countries and environment from

different aspects. On basis of these researches done in different countries, the methodology of the

research has been formulated.

To analyze this problem statement, development of objectives is made which contributes to find

the relationship between working capital management and profitability of the firm.

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CHAPTER III

RESEARCH METHODOLOGY

3.1 Study Area and Rationale for selection/ Data Set and Sample

All the manufacturing companies that are listed in the NEPSE (Nepal Stock Exchange) are taken

into consideration as galaxy. There are 20 manufacturing companies that are enlisted in the

NEPSE which represents the population of the study. Bottlers Nepal Limited (Balaju) and Dabur

Nepal signifies as only two of the 20 manufacturing companies that are enlisted in the NEPSE

which is the sample for the study.

The data of Bottlers Nepal Ltd. (Balaju) and for Dabur Nepal for the period of 2006 to 2010 used

in this study has been collected from secondary sources i.e. Annual reports of the company

provided by the company itself. Editing, classification and tabulation of the financial data

collected have been done as requirement of the study. Latest 5 year data as per the availability is

taken for better analysis and accurate future prediction.

3.2 Nature and Source of Data

The study uses mostly the primary sources of information and very limited secondary sources of information. To receive in-depth knowledge regarding the multinational companies in Kathmandu, data were gathered through analysis done in their financial statement as well as from secondary sources such as articles from newspapers and magazine.

3.3 Data Analysis and Interpretation

After collecting data, all the data/information was entered in the computer software Ms Excel. They were processed, tabulated and analyzed by using simple statistical tools in Ms Excel. Qualitative approaches are used to analyze the collected qualitative information. Different figures, graphs and tables are used as applicable for the quantitative data’s. All these data are presented in this report.

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3.4 Ethical Consideration

Research ethics involves the application of fundamental ethical principles. Throughout the research people confidentiality of the participants was maintained.

3.5 Variables

This study undertakes the issue of identifying key variables that influence working capital

management of Bottlers Nepal and Dabur Nepal. The choice of the variables is influenced by the

previous studies on working capital management.

The variables used for the study includes dependent variable, independent variable and some

control variables as well. Gross operating profitability that is a measure of profitability of firm is

used as dependent variable. It is defined as sales minus cost of goods sold, and divided by total

assets minus financial assets. For a number of firms in the sample, financial assets, which are

chiefly shares in affiliated firms, are a significant part of total assets. When the financial assets

are main part of total assets, its operating activities will contribute little to overall return on

assets. The ratios analyzed are;

Return on Assets (ROA) = Net Profit/ Total Assets: measures what percentage of return the

company earned by utilizing its assets.

Return on Equity (ROE) = Net Profit/ Total Equity: measures what percentage of return

the company earned by utilizing its shareholders equity.

Number of days accounts receivable (ACP) used as proxy for the collection policy is an

independent variable. It is calculated as (accounts receivable x 365)/sales.

Number of days inventories (ICP) used as proxy for the inventory policy is an independent

variable. It is calculated as (inventories x 365)/ cost of goods sold.

Number of days accounts payable (PDP) used as proxy for the payment policy is an

independent variable. It is calculated as (accounts payable x 365)/ cost of goods sold.

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The cash conversion cycle used as a comprehensive measure of working capital management

is another independent variable. It is calculated as (ICP + ACP – PDP).

Current Ratio (CR) which is a traditional measure of liquidity is calculated by dividing

current assets by current liabilities.

Debt Ratio (DR) = Total Debt/ Total Assets: measures what percent of assets have been

financed by debt.

Various studies have utilized the control variables along with the main variables of working

capital in order to have an opposite analysis of working capital management on the firm’s

profitability.

All the above variables have relationships that ultimately affect working capital management. It

is expected that there is a negative relationship between Gross operating profitability on the one

hand and the measures of Working Capital Management (number of days’ accounts receivable,

inventories and accounts payable and cash conversion cycle) on the other hand. This is consistent

with the view that the time lag CCC can be too long, and that decreasing this time lag increases

profitability.

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CHAPTER IV

DATA PRESENTATION AND ANALYSIS

4.1 Comparisons between Two Multinational Companies on the basis of Available Ratios

4.1.1 Comparison on the basis of Current Ratio

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables).

1 2 3 4 50.000

0.500

1.000

1.500

2.000

2.500

3.000

Current Ratio Dabur NepalCurrent Ratio Bottlers Nepal

Table no: 1 Comparison on the basis of Current Ratio

As we can figure out from the above table that in the year 2006 both the MNCs current ratios was in head to head with each other but in later years Dabur Nepal has significantly raised its current ratio as compared to that of Bottlers Nepal. The reason why we have low current ratios in the year 2007to 2009 is that because of market crash worldwide. The higher the current ratio, the more capable the company is of paying its obligations thus from this table we can conclude the fact that Dabur Nepal is more capable company to pay for its obligation then Bottlers Nepal this can also be because Dabur Nepal has its portfolio diversified as it has invested it multiple sector as its products varied but Bottlers Nepal has only invested it bulk of amount its drinks thus the current ratio of Dabur Nepal could be higher than that of Bottlers Nepal.

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4.1.2 Comparisons on basis of Quick Ratio

Quick Ratio is an indicator of company's short-term liquidity. It measures the ability to use its quick assets to pay its current liabilities.

1 2 3 4 50.000

0.200

0.400

0.600

0.800

1.000

1.200

1.400

1.600

1.800

Quick Ratio Dabur NepalQuick Ratio Bottlers Nepal

Table no: 2 Comparisons on basis of Quick Ratio

Quick ratio specifies whether the assets that can be quickly converted into cash are sufficient to cover current liabilities. In the first year i.e. 2006 Bottlers Nepal has significantly higher quick ratio as compared to that of Dabur Nepal but at the later years Dabur Nepal quick ratio has increased its quick ratio as that of compared to that of Bottlers Nepal.Ideally, quick ratio should be 1:1.If quick ratio is higher, company may keep too much cash on hand or have a problem collecting its accounts receivable. Higher quick ratio is needed when the company has difficulty borrowing on short-term notes. A quick ratio higher than 1:1 indicates that the business can meet its current financial obligations with the available quick funds on hand.A quick ratio lower than 1:1 may indicate that the company relies too much on inventory or other assets to pay its short-term liabilities.Many lenders are interested in this ratio because it does not include inventory, which may or may not be easily converted into cash.

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4.1.3 Comparisons on the basis of Return on Assets (ROA)

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. 

1 2 3 4 5-0.050

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

ROA Dabur NepalROA Bottlers Nepal

Table no: 3 Comparisons on basis of Return on Assets (ROA)

As per the analysis of above figure we can analyze the fact that Dabur Nepal has significantly higher return on assets as compared to that of Bottlers Nepal. Both of the companies have significantly increased it return on assets in the later years but we also have negative return on assets for the Bottlers Nepal in the year 2007. one can also conclude the fact that the management of Dabur Nepal is more efficient and productive at using its assets to generate earnings thus between these two companies Dabur Nepal is the more productive company, but it might also be because of the fact that Dabur Nepal is a huge company because it has investment in many products as compared to that of Bottlers Nepal.  With this ratio, business owners can determine whether the money they put into their businesses is making a difference thus investors or the proprietors can be happy if they are putting their amount in both but the investors of Dabur Nepal would particularly be much happier. Bottlers Nepal having low ROA can also be because of the fact that in the early stages of growth of a company, the ratio will usually not be as attractive as it is later in the company's life. Once the business matures and starts to get everything in order, the return on assets ratio should improve.

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4.1.4 Comparisons on the basis of Return on Equity (ROE)

Return on equity is a critical weapon in the investor's arsenal, ROE encompasses the three pillars of corporate management -- profitability, asset management, and financial leverage.

1 2 3 4 5-0.100

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800

0.900

ROE Dabur NepalROE Bottlers Nepal

Table no: 4 Comparisons on basis of Return on Equity (ROE)

As we know ROE pays to invest in companies that generate profits more efficiently than their rivals. Return on equity (ROE) can help investors distinguish between companies that are profit creators and those that are profit burners. As per the comparisons between these two multinational companies Dabur Nepal has significantly higher return on assets as compared to that of Bottlers Nepal. Both of the companies have significantly increased it return on assets in the later years but we also have negative return on assets for the Bottlers Nepal in the year 2007. On the other hand, ROE might not necessarily tell the whole story about a company, and therefore must be used carefully because High ROE yields no immediate benefit. Since stock prices are most strongly determined by earnings per share (EPS), you will be paying twice as much (in Price/Book terms) for a 20% ROE Company as for a 10% ROE company.Dabur Nepal ROE offers a useful signal of financial success since it indicate whether the company is growing profits without pouring new equity capital into the business.

One can simply put Dabur Nepal; ROE indicates know how well management is employing the investors' capital invested in the company. It turns out, however, that a company cannot grow earnings faster than its current ROE without raising additional cash. That is, a firm that now has a 15% ROE cannot increase its earnings faster than 15% annually without borrowing funds or selling more shares.

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4.1.5 Comparison on the basis of Debt Ratio

Debt Ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt. It is the ratio of total debt and total assets.

1 2 3 4 50.000

0.200

0.400

0.600

0.800

1.000

1.200

1.400

1.600

Debt Ratio Dabur NepalDebt Ratio Bottlers Nepal

Table no: 5 Comparisons on basis of Debt Ratio

As we know the fact that higher the ratio, the greater risk will be associated with the firm's operation thus from the figure we can conclude the fact that Bottlers Nepal has the higher debt ratio as compared to Dabur Nepal. In addition, high debt to assets ratio may indicate low borrowing capacity of a firm i.e. Bottlers Nepal has lower borrowing capacity, which in turn will lower the Bottlers Nepal financial flexibility.

The debt/asset ratio shows the proportion of a company's assets which are financed through debt. If the ratio is less than 0.5, most of the company's assets are financed through equity. If the ratio is greater than 0.5, most of the company's assets are financed through debt thus we can figure out the fact that the Dabur Nepal has financed much of it assets through its equity. Companies with high debt/asset ratios are said to be "highly leveraged," not highly liquid thus Bottlers Nepal is highly leveraged multinational company. A company with a high debt ratio (highly leveraged) could be in danger if creditors start to demand repayment of debt.

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4.1.6 Comparisons on the basis of Inventory period

A ratio showing how many times a company's inventory is sold and replaced over a period. The inventory turnover formula or stock turnover ratio is the number of times that inventory is used during a measurement period (usually a year).

1 2 3 4 50.000

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

180.000

200.000

Inventory Turnover Period Dabur NepalInventory Turnover Period Bot-tlers Nepal

Table no: 6 Comparisons on basis of Inventory period

Two primary factors control inventory turnover. The average amount of inventory you keep on hand, and the total cost of the entire inventory you sold in a given time period. Hereby the fact is that inventory turnover period of Bottlers Nepal is higher as compared to that of Dabur Nepal.

Average inventory will largely be determined by your business model and your business finances. A company’s inventory turnover ratio can give you an idea of how well it manages its resources. If its ratio is very low i.e. for Dabur Nepal, it may mean the company has much more inventory than it really needs at any one time. Therefore it has too much of its capital tied up in goods or raw materials that it will take a long time to sell or make a profit on. Generally speaking, a business with high profit margins on its finished goods can worry less about a low turnover ratio. A high inventory turnover ratio i.e. of the Bottlers Nepal is a little harder to interpret. It could mean the company has had unexpectedly strong sales -- a good sign. Or it could mean the firm is not managing its buying as well as it might and is having difficulty in administering its inventory.

Inventory is frequently the largest component of a company’s working capital, so if inventory is not being used up by operations at a reasonable pace, then a company has invested a large part of its cash in an asset that may be difficult to liquidate in short order.  

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4.1.7 Comparisons on the basis of Account Payable Period

An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable entry is found on a balance sheet under the heading current liabilities. Accounts payable are often referred to as "payables". 

1 2 3 4 50.000

50.000

100.000

150.000

200.000

250.000

Account Payable Period Dabur NepalAccount Payable Period Bottlers Nepal

Table no: 7 Comparisons on basis of Account Payable Period

Accounts payable are debts that must be paid off within a given period of time in order to avoid default. Payables are not limited to corporations. At the household level, people are also subject to bill payment for goods or services provided to them by creditors. For example, the phone company, the gas company and the cable company are types of creditors. Each one of these creditors provides a service first and then bills the customer after the fact. From the above table we can analyze the fact that among two multinational companies bottlers Nepal has more payables as compared to that of Dabur Nepal. Each demands payment for goods or services rendered and must be paid accordingly. If people or companies don't pay their bills, they are considered to be in default. The value of accounts payable represents the amount of money a company owes to suppliers for providing goods or services with the expectation of being paid in the future. Investors use accounts payable to calculate insightful financial ratios. Understanding the implications of debt-ratio valuations, as well as the accounts payable figure itself, can give you a deeper understanding of a company's strengths, weaknesses, strategies and life-cycle stage.

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4.1.8 Comparisons on the basis of Account Receivable Period

Accounts receivable is the amount of money that is owed to the company after the company extends the customer credit. In other words, sales are paid for either by cash or credit extended by the company to the customer. In either event, the revenue is recognized. Then, when the payment is received on the account receivable, no additional revenue is recorded.

1 2 3 4 50.000

50.000

100.000

150.000

200.000

250.000

Account Payable Period Dabur NepalAccount Payable Period Bottlers Nepal

Table no: 8 Comparisons on basis of Account Receivable Period

Accounts receivable is a recording of revenue that is not collected immediately as cash. Manufacturers and trade resellers often offer trade buyers credit accounts to encourage them to buy more regularly and in higher volumes. When an order is placed on account, the invoiced amount is recorded as accounts receivable. Once payment is collected, the amount is credited from the accounts receivable account. Accounts receivable is opposite accounts payable, which is when your company buys product on account. A high accounts receivable turnover ratio i.e. for the bottlers Nepal means the fact that one has a strong credit collection policy and do well collecting cash quickly from accounts. High accounts turnover is important for companies in generating cash flow to keep up with short-term capital requirements such as current liabilities, expenses and investment in growth. Having a high turnover ratio means that you are doing well getting payment on accounts. This means that you have good cash flow. If your accounts payable has less restrictive terms, you have a net cash flow gain on accounts. Along with meeting your current obligations, creditors like to see a strong accounts receivable turnover. Company leaders typically have to implement more restrictive credit collection policies if turnover is low, potentially turning away trade buyers.

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4.1.9 Comparisons on the basis of Cash Conversion Cycle

A metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers

1 2 3 4 5

-60.000

-40.000

-20.000

0.000

20.000

40.000

60.000

80.000

100.000

120.000

Cash Conversion Cycle Dabur NepalCash Conversion Cycle Bottlers Nepal

Table no: 9 Comparisons on basis of Cash Conversion Cycle

Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery. This cycle is extremely important for retailers and similar businesses.

If the company sells what people want to buy, cash cycles through the business quickly. If management cannot figure out what sells, the CCC slows down. For instance, if too much inventory builds up, cash is tied up in goods that cannot be sold - this is not good news for the company. In order to move out this inventory quickly, management might have to slash prices, possibly selling its product at a loss. If AR is handled poorly, it means that the company is having difficulty collecting payment from customers. This is because AR is essentially a loan to the customer, so the company loses out whenever customers delay payment. The longer a company has to wait to be paid, the longer that money is unavailable for investment elsewhere. On the other hand, the company benefits by slowing down payment of AP to its suppliers, because that allows the company to make use of the money for longer.

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4.1.10 Comparisons on the basis of Size of the Firm

1 2 3 4 50.000

5.000

10.000

15.000

20.000

25.000

Size of the Firm Dabur NepalSize of the Firm Bottlers Nepal

Table no: 10 Comparisons on basis of Size of the Firm

Optimal firm size refers to the speed and extent of growth that is ideal for a specific small business. Optimal firm size is dependent on a variety of internal and external factors. For some home-based businesses, the optimal size may be the two founding partners—a husband and wife—if their primary operating goal is simply to bring in enough revenue for a comfortable standard of living, while leaving large blocks of time for family or travel. But most companies are intent on expanding their operations. Growth of some kind, either in revenues, profits, number of employees, or size of facilities, is essential for almost every business. For many companies competing in rapidly changing industries, expansion (of manufacturing capacity, geographic presence, market share, etc.) may be imperative for survival. But smart growth strategies can be elusive, as many entrepreneurs have learned to their chagrin. Particularly the size of the Bottlers Nepal is larger as compared to that of the Dabur Nepal.

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4.2 Descriptive Statistics

4.2.1 Descriptive Statistics of Dabur Nepal

VARIABLES CR QR ROA ROE DR ITP APP ARP CCC Size

Mean 2.1540.97

70.24

4 0.7590.27

5107.58

7112.75

6 39.623 34.45410.08

3Standard Error 0.256

0.141

0.041 0.007

0.056 8.567 8.699 4.049 4.114 0.067

Standard Deviation 0.572

0.315

0.092 0.017

0.124 19.155 19.451 9.054 9.198 0.149

Minimum 1.6180.76

20.14

6 0.7330.14

0 93.200 90.721 28.275 24.627 9.873

Maximum 2.7941.52

80.35

6 0.7740.41

3141.05

0136.67

4 50.117 49.52210.22

7

Sum10.76

84.88

51.22

0 3.7951.37

4537.93

7563.78

0198.11

3172.27

050.41

5

Table no: 11 Descriptive Statistics of Dabur Nepal

The minimum value of ROA as measure of the profitability is 14.36 % but the maximum value of ROA is 35.6%. While the mean of ROA is 24.4% of total assets and the standard deviation is 9.22%.

The Account Receivable Period (ARP) has 28.275 days (approximately) as minimum to collect its receivables from the purchasers but it takes 50 days as maximum to collect its receivables. The average days of generating its sales on account about 10 days. In addition, the Inventory Conversion Period (ICP) takes about 93 days to sell its entire inventory as minimum and takes 141 days as maximum. The mean days to sell the inventory are 108 days with standard deviation of 19 days. About the Account Payable Period (APP), the firm has a minimum 91 days to pay its purchases on account and 137 days as a maximum time. It takes an average 113 days to pay its purchases with standard deviation of 20 days.

The Cash Conversion Cycle (CCC) has 25 days as minimum time and it is logical value, because referred to that the account payable period (APP) is smaller than both the account receivables and inventory conversion period. The firm needs 50 days as a maximum time from making its payments to receive its cash inflow. It takes an average 34 days from making its payment to receive its cash inflow with standard deviation of 9 days.

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4.2.2 Descriptive statistics of Bottlers Nepal

  ROA ROE CR QR DR Size APP ARP CCC ITP

Mean 0.036 0.0821.27

20.76

61.06

2 20.574154.30

8 20.204 8.824142.92

4Standard Error 0.023 0.054

0.211

0.120

0.175 0.176 24.277 5.196 27.338 14.533

Standard Deviation 0.052 0.120

0.472

0.268

0.391 0.394 54.286 11.619 61.130 32.496

Minimum-

0.022-

0.0400.92

00.55

00.49

0 20.250104.12

0 8.020-

39.450113.90

0

Maximum 0.122 0.2822.07

01.23

01.47

0 21.190236.99

0 34.420107.83

0181.43

0

Sum 0.181 0.4116.36

03.83

05.31

0102.87

0771.54

0101.02

0 44.120714.62

0

Table no: 12 Descriptive statistics of Bottlers Nepal

The minimum value of ROA as measure of the profitability is -2.17% but the maximum value of ROA is 12.15%. While the mean of ROA is 3.61% of total assets and the standard deviation is 5.22%.

The Account Receivable Period (ARP) has 8 days (approximately) as minimum to collect its receivables from the purchasers but it takes 34.42 days as maximum to collect its receivables. The average days of generating its sales on account about 20 days. In addition, the Inventory Conversion Period (ICP) takes about 113 days to sell its entire inventory as minimum and takes 181 days as maximum. The mean days to sell the inventory are 142 days with standard deviation of 32 days. About the Account Payable Period (APP), the firm has a minimum 104 days to pay its purchases on account and 236 days as a maximum time. It takes an average 154 days to pay its purchases with standard deviation of 54 days.

The Cash Conversion Cycle(CCC) has -39 days as minimum time and it is illogical value, may be referred to that the account payable period (APP) is larger than both the account receivables and inventory conversion period. The firm needs 107 days as a maximum time from making its payments to receive its cash inflow. It takes an average 8 days from making its payment to receive its cash inflow with standard deviation of 61 days.

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4.3 Correlation analysis

4.3.1 Correlation analysis of bottlers Nepal

variables  ROA ROE CR QR DR ITP APP ARP CCC SizeROA 1ROE 0.996 1CR 0.196 0.110 1QR 0.112 0.023 0.987 1DR 0.342 0.401 -0.724 -0.692 1ITP -0.531 -0.569 0.510 0.488 -0.956 1APP -0.760 -0.697 -0.710 -0.674 0.085 0.203 1ARP -0.698 -0.736 0.457 0.499 -0.835 0.912 0.297 1CCC 0.260 0.177 0.989 0.953 -0.742 0.525 -0.724 0.411 1Size 0.901 0.923 -0.152 -0.252 0.523 -0.654 -0.513 -0.884 -0.060 1

Table no: 13 Correlation analyses of bottlers Nepal

We can see that the ROA and CCC share a low significant positive relationship as the correlation is less than 0.5; similarly the Debt ratio (leverage) and CCC share a significant negative relationship as correlation is more than 0.5.

Likewise the liquidity and CCC share a significant positive relationship with correlation of 0.989 which means that raise in liquidity leads to raise in CCC and the CCC and size share a significant negative relationship which means that rise in size of the firm results to the fall in the CCC in terms of days.

Similarly there is significant positive relationship between ROA and Debt ratio as correlation is above 0.5. This means with the raise in the leverage we see that the profits also increase.

ROE, size and liquidity also share a strong significant positive relationship where ROE raise leads to raise in both Liquidity and Size of firms and vice- versa.

Leverage and liquidity share a low significant relationship whereas leverage and size share a significant positive relationship, where strong leverage leads to growth in the size of the organization.

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Liquidity and size also share a significant positive relationship as having good liquidity would mean fulfillment of all liquidity needs and funds being accumulated for future investments resulting to growth of the firms as well.

4.3.2 Correlation analysis of Dabur Nepal

  Current Ratio

Quick Ratio

ROA ROE Debt Ratio

ITP APP RP CCC Size

Current Ratio

1.000

Quick Ratio

0.634 1.000

ROA -0.058 -0.673 1.000ROE 0.314 -0.054 -0.103 1.000Debt Ratio -0.719 -0.754 0.675 -0.359 1.000ITP -0.134 -0.244 -0.371 0.612 -0.372 1.000APP -0.798 -0.478 -0.310 -0.006 0.213 0.665 1.000ARP -0.613 -0.407 0.502 -0.690 0.890 -0.677 0.035 1.000CCC 0.805 0.102 0.377 0.608 -0.348 0.010 -0.696 -0.500 1.00

0Size -0.024 -0.449 0.923 -0.426 0.669 -0.667 -0.448 0.674 0.22

31.000

Table no: 14 Correlation analyses of Dabur Nepal

We can see that the ROE and CCC share a positive relationship as the correlation is less than 0.5; similarly the Debt ratio (leverage) and CCC share a significant negative relationship as correlation is more than 0.5.

Likewise the liquidity and CCC share a significant positive relationship with correlation of 0.805 which means that raise in liquidity leads to raise in CCC and the CCC and size share a significant negative relationship which means that rise in size of the firm results to the fall in the CCC in terms of days.

Similarly there is significant positive relationship between ROA and Debt ratio as correlation is above 0.5. This means with the raise in the leverage we see that the profits also increase.

ROE and size a significant negative relationship where ROE raise leads to fall in Size of firms and vice- versa.

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Leverage and liquidity share a negative relationship whereas leverage and size share a significant positive relationship, where strong leverage leads to growth in the size of the organization.

Liquidity and size also share a significant negative relationship. A rise in size will lead to fall in liquidity and vice-versa.

4.4 Regression analysis I

4.4.1 Regression analysis I of Dabur Nepal

Regression StatisticsMultiple R 0.86R Square 0.74Adjusted R Square -0.05Standard Error 0.02

Observations 5.00

  Coefficients Standard Error t Stat P-valueIntercept 0.6529 0.1661 3.9315 0.1586Inventory Turnover Period 0.0017 0.0017 1.0011 0.4997Account Payable Period -0.0012 0.0012 -0.9248 0.5249

Account Receivable Period 0.0013 0.0027 0.4731 0.7187

Table no 15: Regression analysis I of Dabur Nepal

In this model the ROE is the dependent variable and the other independent variables are inventory turnover period, account payable period and account receivable period.

The R square of the model is 0.74. This means that 74% change in the dependent variables is explained by the change in the other 3 dependent variables. The standard error of the model is 0.02 which is at a level of 2% which is the adjustment factor for the accuracy of the data. Similarly the intercept represents the fixed changes in the dependent variables which means even if there is no change in the independent variables the dependent variables would change by certain units.

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In case of ITP we see that the regression beta coefficient of ROE is 0.017. This means positive changes in the ITP would increase ROE by 0.017 units. The relationship being established is insignificant at 0.05 level of significance.

The APP is negatively related with ROE. When there is a unit change in ROE, APP would increase by 0.0012. Also the account receivable period is positively correlated with ROE. Two variables namely Account Receivable Period and Account Payable Period are significant because the p-value is greater than 0.05.

4.4.2 Regression analysis I of Bottlers Nepal

Regression StatisticsMultiple R 0.905R Square 0.819Adjusted R Square 0.277Standard Error 0.102Observations 5

  Coefficient

s Stan error t-Stat P-valueIntercept(ROE) 0.237 0.410 0.578 0.667ITP 0.002 0.004 0.387 0.765APP -0.001 0.001 -1.093 0.472ARP -0.010 0.011 -0.890 0.537

Table no: 16 Regression analysis I of Bottlers Nepal

In this model the ROE is the dependent variable and the other independent variables are inventory turnover period, account payable period and account receivable period.

The R square of the model is 0.819. This means that 81.9% change in the dependent variables is explained by the change in the other 3 dependent variables.

The standard error of the model is 0.102 which is at a level of 10.2% which is the adjustment factor for the accuracy of the data. Similarly the intercept represents the fixed changes in the

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dependent variables which means even if there is no change in the independent variables the dependent variables would change by certain units.

In case of ITP we see that the regression beta coefficient of ROE is 0.002. This means positive changes in the roe would increase ITP by 0.002 units. The relationship being established is insignificant at 0.05 level of significance.

The APP is negatively related with ROE. When there is a unit change in ROE, APP would increase by 0.001. Also the account receivable period is negatively correlated with ROE. Two variables namely inventory turnover period and account receivable period are significant because the p-value is greater than 0.05.

4.5 Regression analysis II

4.5.1 Regression analysis II of Dabur Nepal

Regression StatisticsMultiple R 1.00R Square 0.99Adjusted R Square 0.96Standard Error 0.02Observations 5.00

  Coefficients Standard Error t -Stat P-valueIntercept -3.87 0.74 -5.20 0.12Quick Ratio -0.17 0.04 -3.75 0.17Current Ratio 0.05 0.02 2.35 0.26Size of the Firm 0.41 0.07 5.66 0.11

Table no: 17 Regression analyses II of Dabur Nepal

In the model, ROA is dependent variable. The Quick ratio, current ratio and size of the firm are independent variables.

The R square of the model is 0.99. This means that 99% change in the dependent variables is explained by the change in the other 3 dependent variables.

The standard error of the model is 0.02 which is at a level of 2% which is the adjustment factor for the accuracy of the data. Similarly the intercept represents the fixed changes in the dependent variables which means even if there is no change in the independent variables the dependent variables would change by certain units.

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In case of Quick ratio we see that the regression beta coefficient of Quick ratio is -0.17. This means negative changes in the ROA would increase quick ratio by -0.17 units in the debt ratio. The relationship being established is insignificant at 0.05 level of significance.

The current ratio is positively related with ROA as well. When there is a unit change in ROA, current ratio would increase by 0.05. Also the size of the firm is positively correlated with ROE. All three variables are significant because the p-value is greater than 0.05.

4.5.3 Regression analysis II of Bottlers Nepal

Regression StatisticsMultiple R 0.970R Square 0.941Adjusted R Square 0.762Standard Error 0.026

Observations 5

  CoefficientsStandard

Error t -Stat P-valueIntercept(ROA) -2.920 0.908 -3.215 0.192QR 0.203 0.394 0.515 0.697CR -0.074 0.219 -0.339 0.792

SIZE 0.141 0.043 3.264 0.189Table no: 18 Regression analyses II of Bottlers Nepal

In the model, ROA is dependent variable. The Quick ratio, current ratio and size of the firm are independent variables.

The R square of the model is 0.941. This means that 94.1% change in the dependent variables is explained by the change in the other 3 dependent variables.

The standard error of the model is 0.026 which is at a level of 2.6% which is the adjustment factor for the accuracy of the data. Similarly the intercept represents the fixed changes in the

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dependent variables which means even if there is no change in the independent variables the dependent variables would change by certain units.

In case of Quick ratio we see that the regression beta coefficient of Quick ratio is 0.203. This means positive changes in the ROA would increase quick ratio by 0.203 units in the debt ratio. The relationship being established is insignificant at 0.05 level of significance.

The Current ratio is negatively related with ROA. When there is a unit change in ROA, Current ratio would increase/decrease by -0.074. But the size is positively correlated with ROA. Two variables namely current ratio and quick ratio are not significant because the p-value is greater than 0.05 whereas size of the firm is significant variable as its value is below 0.05.

CHAPTER V

SUMMARY AND CONCLUSIONS

5.1 Conclusions

This paper examines and compares the relationship between the working capital management and profitability among two Multinational companies Bottlers Nepal Limited (Balaju) and Dabur Nepal. This report was carried out with the basic objective to explore the comparisons between two multinational companies and to know which is the fast growing multinational company in Nepal among these two. Dabur Nepal is more capable company to pay for its obligation as the higher the current ratio, the more capable the company is of paying its obligations. Quick ratio of Dabur Nepal is higher, it may be because it has kept too much cash on hand or have a problem collecting its accounts receivable. Dabur Nepal has significantly higher return on assets as compared to that of Bottlers Nepal. Both of the companies have significantly increased it return on assets in the later years but we also have negative return on assets for the Bottlers Nepal in the year 2007. Dabur Nepal has significantly higher return on assets as compared to that of Bottlers Nepal. Both of the companies have significantly increased it return on assets in the later years but we also have negative return on assets for the Bottlers Nepal in the year 2007. Bottlers Nepal has the higher debt ratio as compared to Dabur Nepal thus Bottlers Nepal has higher risk as compared to that of Dabur Nepal. A high inventory turnover ratio i.e. of the Bottlers Nepal is a little harder to interpret. It could mean the company has had unexpectedly strong sales -- a good sign. Or it could mean the firm is not managing its buying as well as it might and is having difficulty in administering its inventory. Bottlers Nepal has a strong credit collection policy and do well collecting cash quickly from accounts. Dabur Nepal ROA as measure of the profitability is 14.36 % but the maximum value of ROA is 35.6%. While the mean of ROA is 24.4% of total

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assets and the standard deviation is 9.22%. Bottlers Nepal ROA as measure of the profitability is -2.17% but the maximum value of ROA is 12.15%. While the mean of ROA is 3.61% of total assets and the standard deviation is 5.22%. For bottlers Nepal ROA and CCC share a low significant positive relationship. thus from the above analysis we can conclude the fact that Dabur Nepal is the more better company as compared to that of the Bottlers Nepal but this may also be merely because Dabur Nepal has its portfolio diversified as it has invested it multiple sector as its products varied but Bottlers Nepal has only invested its bulk of amount only on soft drinks.

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