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WORKING CAPITAL MANAGEMENT PRACTICES IN FAST MOVING CONSUMER GOODS (FMCG) COMPANIES IN BANGLADESH
Transcript of Fm
WORKING CAPITAL MANAGEMENT PRACTICES IN FAST MOVING
CONSUMER GOODS
(FMCG) COMPANIES IN BANGLADESH
Report
On
WORKING CAPITAL MANAGEMENT PRACTICES IN FAST MOVING
CONSUMER GOODS
(FMCG) COMPANIES IN BANGLADESH
Submitted To:
Mr. Oli Ahad Thakur
Assistant Professor
Faculty of Business Administration
Eastern University
Submitted By:
Course Title: Financial Management
Course Code: FIN 459
Group : 01
Submission Date: May 25th, 2011
Eastern University
May 25, 2011
Mr. Oli Ahad Thakur
Assistant Professor
Faculty of Business Administration
Eastern University
Subject: Submission of Final Report.
Dear Sir
We are writing this letter to inform you that the report you provided to prepare to
us has come to the end. We have done the report on the basis of direct interview
from the manager in charge of working capital department (Finance Department)
of several firms operating FMCG activities in our country. We tried to find out the
actual situation happening in the current working capital management in our
country. We made a questionnaire which is corrected by you and finally we asked
the questions to the managers.
We tried to give the best of ours. If you have any further query, we shall be
delighted to answer those.
Yours truly,
………………….
Financial Management (FIN 459),
Group-01.
WORKING CAPITAL MANAGEMENT PRACTICES IN FAST MOVING
CONSUMER GOODS (FMCG) COMPANIES IN BANGLADESH
ABSTRACT
Working Capital Management has become a matter of concern in the current
business activities in our country. It was not a big issue in the earlier days as it was
maintained automatically. But due to the opportunity to make some profit from
managing the working capital, it has become an important issue to manage.
The objective of this report was to know either the FMCG companies use this
working capital management or not.
After doing the research, we have come to the decision that the companies are
concern about the working capital management. But they do not emphasis to make
some profit from it. In general, they try to avoid the risk of being stock out situation.
Their sales is so high that in almost all the cases
Introduction:
Working capital management involves all the management decision which
influences the level and effectiveness of the working capital.
WORKING CAPITAL PRACTICE IN BANGLADESH
The objective is to find out either the company manage working capital or not.
ANALYSIS:
What is the basic reason of being maintaining high current asset?
4 80.0 80.0 80.0
1 20.0 20.0 100.0
5 100.0 100.0
industry norms
minimizing risk
Total
ValidFrequency Percent Valid Percent
CumulativePercent
It is seen that most of the firms believe that they keep high current asset in
comparison with their total asset. The FMCG companies are naturally supplying
their products each and every day. So they need high level of current asset. Without
keeping high level of current asset they cannot fulfill their business obligation. So
they can not take any risk without keeping high portion of current asset.
If the reason is minimizing risk, then which purpose?
1 20.0 50.0 50.0
1 20.0 50.0 100.0
2 40.0 100.0
3 60.0
5 100.0
release from price hike
stock out
Total
Valid
SystemMissing
Total
Frequency Percent Valid PercentCumulative
Percent
The FMCG companies require too much current asset to maintain the day to day
activities that they do not have any other alternatives. Sometimes in special
occasions, the giant companies also face stock out situation. A huge amount of the
raw materials comes from abroad. It takes a long time to import those. So they do
not want to take any risk. Sometimes it seems that stock out situation is occurred
because of low inventory. So companies try to obtain high current asset to avoid the
situation. FMCG Company has the tendency to keep current asset because of the
uncertainty of price hike.
In adition to transaction which purpose you hold cash?
2 40.0 40.0 40.0
2 40.0 40.0 80.0
1 20.0 20.0 100.0
5 100.0 100.0
liquidity purpose
taking advantage fromuncertain changing ofgoods and servic
safety purpose
Total
ValidFrequency Percent Valid Percent
CumulativePercent
According to the speech of the managers, basically they are keeping the cash to
maintain liquidity of the firm as well as to take the advantage from uncertain
changing of goods and service. However, they also keep the money for the safety
purpose.
Do you think your company maintains optimul level of current assets?
4 80.0 80.0 80.0
1 20.0 20.0 100.0
5 100.0 100.0
yes
no
Total
ValidFrequency Percent Valid Percent
CumulativePercent
Most of the managers believe that they maintain the optimum level of current asset.
The requirement of the current asset is high and they always try to maintain it.
However, there are some cases where they are not satisfied of their current asset
level.
How you collect your cash?
1 20.0 20.0 20.0
2 40.0 40.0 60.0
2 40.0 40.0 100.0
5 100.0 100.0
by draft
directly
others
Total
ValidFrequency Percent Valid Percent
CumulativePercent
The cash collection policy is a little versatile for them. Many of them try to collect it
directly. However, they maintain many other policies like draft, L/C, Telegraphic
Transfer (TT) or Direct Draft (DD).
What is the average cash collection period?
4 80.0 80.0 80.0
1 20.0 20.0 100.0
5 100.0 100.0
less htan 10 days
10-20 days
Total
ValidFrequency Percent Valid Percent
CumulativePercent
The companies are not concern about the cash collection period. Naturally they
ensure the collection in minimum 10 days. Sometimes, they collect it within 2 or 3
days.
How does your company finance current assets?
5 100.0 100.0 100.0short term financingValidFrequency Percent Valid Percent
CumulativePercent
It is a matter to notice that the five of the managers have said that they finance the
current asset by short term financing. They are not risk taker in most of the cases
but still they do not finance in current asset by long term financing. They try to
minimize the risk but not necessarily to take some conservative approach.
Why fixed asset portion is low compared to current asset?
2 40.0 40.0 40.0
2 40.0 40.0 80.0
1 20.0 20.0 100.0
5 100.0 100.0
market practice
to meet the businessrequirement
other
Total
ValidFrequency Percent Valid Percent
CumulativePercent
The fixed asset portion is relatively low in comparison with the current asset as they
need to invest heavily in the current assets. They believe that the market practice is
such that if they do not maintain the low portion in fixed asset then they might face
some problem.
How does your company finance fixed asset?
4 80.0 80.0 80.0
1 20.0 20.0 100.0
5 100.0 100.0
long term financing
mix financing
Total
ValidFrequency Percent Valid Percent
CumulativePercent
The risk taking tendency is very low for them. They try to finance in fixed asset by
long term financing.
Do you use credit in terms of purchase?
5 100.0 100.0 100.0yesValidFrequency Percent Valid Percent
CumulativePercent
100% of the managers have said that they use credit in terms of purchase.
If q11 answer is yes then why?
1 20.0 20.0 20.0
4 80.0 80.0 100.0
5 100.0 100.0
to balance liquidity
to follow industry norms
Total
ValidFrequency Percent Valid Percent
CumulativePercent
The industry norm is to use some credit in purchase. It helps them to build a long
term relation with the suppliers. The firms get assured that the suppliers will not
leave them when the situation is adverse. The suppliers are also satisfied that they
get the scope of supplying them for many days.
Do you use credit in terms of selling?
4 80.0 80.0 80.0
1 20.0 20.0 100.0
5 100.0 100.0
yes
no
Total
ValidFrequency Percent Valid Percent
CumulativePercent
They use credit to sale their products. Almost 80% of them have agreed that they
use credit to sale their products. But the credit is not used for longer period.
If q14 answer is yes, does it impact sales positively?
4 80.0 100.0 100.0
1 20.0
5 100.0
yesValid
SystemMissing
Total
Frequency Percent Valid PercentCumulative
Percent
It is actually not a way of increasing sales. They try to collect the cash within 10
days. The credit is used just because of some system loss. There are some places
where communication is difficult to make within one day. They try to collect it
within 10 days only in this type of special reasons. In other cases, they try to
manager it even less than 10 days.
Have you faced any bed debt loses?
3 60.0 60.0 60.0
2 40.0 40.0 100.0
5 100.0 100.0
yes
no
Total
ValidFrequency Percent Valid Percent
CumulativePercent
Naturally they do not face any bad debt loss. But in some case of almost 40%, they
have faced bad debt loss in the experience of their operation.
If q16 answer is yes then what persentage?
3 60.0 100.0 100.0
2 40.0
5 100.0
1-5Valid
SystemMissing
Total
Frequency Percent Valid PercentCumulative
Percent
The average bad debt loss is very low in this sector. Only 1-5 percent bad debt loss
has been experienced by them.
From company's blance sheet it seems that inventory level is high?
2 40.0 40.0 40.0
1 20.0 20.0 60.0
2 40.0 40.0 100.0
5 100.0 100.0
to skip any stockout situation
to avoid anyfuture price hike
other
Total
ValidFrequency Percent Valid Percent
CumulativePercent
The tendency of the companies is to keep the inventory level very high. The
companies try to operate daily in the business world. The demand of the inventories
often becomes very high. They try to keep the inventories in higher proportion so
that they need not to face any stock out situation. The other people said that they
follow the industry norms. The industry norm is also to avoid the stock out
situation.
The marketable security is not a matter of concern for them. They use marketable
securities only in some special cases. If there is a situation that they need to pay
some money in recent future then they use this tool.
