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? Frequency 4 1 5 Percent 80.0 20.0 100.0 Valid Percent 80.0 20.0 100.0 Cumulative Percent 80.0 100.0

Valid

industry norms minimizing risk Total

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? Frequency release from price hike 1 stock out 1 Total 2 System 3 5 Percent 20.0 20.0 40.0 60.0 100.0 Valid Percent 50.0 50.0 100.0 Cumulative Percent 50.0 100.0

Valid

Missing Total

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? Frequency 2 2 1 5 Percent 40.0 40.0 20.0 100.0 Valid Percent 40.0 40.0 20.0 100.0 Cumulative Percent 40.0 80.0 100.0

Valid

liquidity purpose taking advantage from uncertain changing of goods and servic safety purpose Total

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? Frequency 4 1 5 Percent 80.0 20.0 100.0 Valid Percent 80.0 20.0 100.0 Cumulative Percent 80.0 100.0

Valid

yes no Total

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? Frequency by draft 1 directly 2 others 2 Total 5 Percent 20.0 40.0 40.0 100.0 Valid Percent 20.0 40.0 40.0 100.0 Cumulative Percent 20.0 60.0 100.0

Valid

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? Frequency less htan 10 days 4 10-20 days 1 Total 5 Percent 80.0 20.0 100.0 Valid Percent 80.0 20.0 100.0 Cumulative Percent 80.0 100.0

Valid

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? Frequency short term financing 5 Percent 100.0 Valid Percent 100.0 Cumulative Percent 100.0

Valid

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? Frequency 2 2 1 5 Percent 40.0 40.0 20.0 100.0 Valid Percent 40.0 40.0 20.0 100.0 Cumulative Percent 40.0 80.0 100.0

Valid

market practice to meet the business requirement other Total

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? Frequency long term financing 4 mix financing 1 Total 5 Percent 80.0 20.0 100.0 Valid Percent 80.0 20.0 100.0 Cumulative Percent 80.0 100.0

Valid

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? Frequency 5 Percent 100.0 Valid Percent 100.0 Cumulative Percent 100.0

Valid

yes

100% of the managers have said that they use credit in terms of purchase.
If q11 answer is yes then why? Frequency to balance liquidity 1 to follow industry norms 4 Total 5 Percent 20.0 80.0 100.0 Valid Percent 20.0 80.0 100.0 Cumulative Percent 20.0 100.0

Valid

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? Frequency 4 1 5 Percent 80.0 20.0 100.0 Valid Percent 80.0 20.0 100.0 Cumulative Percent 80.0 100.0

Valid

yes no Total

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? Frequency 4 1 5 Percent 80.0 20.0 100.0 Valid Percent 100.0 Cumulative Percent 100.0

Valid Missing Total

yes System

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? Frequency 3 2 5 Percent 60.0 40.0 100.0 Valid Percent 60.0 40.0 100.0 Cumulative Percent 60.0 100.0

Valid

yes no Total

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? Frequency 3 2 5 Percent 60.0 40.0 100.0 Valid Percent 100.0 Cumulative Percent 100.0

Valid Missing Total

1-5 System

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? Frequency Valid to skip any stock out situation to avoid any future price hike other Total 2 1 2 5 Percent 40.0 20.0 40.0 100.0 Valid Percent 40.0 20.0 40.0 100.0 Cumulative Percent 40.0 60.0 100.0

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.