ltdDabur India - Working Capital and Cost Management
Dr. Narender L. Ahuja, Institute for Integrated Learning in Management, New Delhi, India Ms. Sweta Agarwal, Institute for Integrated Learning in Management, New Delhi, India

ABSTRACT

After running as a family business for over 100 years, when in late 1990s the management of the Dabur was handed over to a team of professional managers, the new management faced a gigantic task of improving performance in several critical areas. In particular, working capital and cost management required urgent attention as the company’s performance in these areas had been far from satisfactory. The then prevailing current ratio of 3.2 and quick ratio of 2.4 were considered too high and indicative of heavy unnecessary investments in working capital that would have a negative effect on company’s profitability. Efforts to improve the working capital efficiency were met with stiff resistance from various quarters, but finally yielded results. The case study discusses the measures taken to improve the working capital and cost management performance, and how with concerted efforts the management turned around a highly inefficient working capital management into one of the most efficient in the FMCG sector of Indian Industry. In fact, the company seemed to have taken the matter to the other extreme of negative working capital, with the current ratio declining to 0.8 and the quick ratio to just 0.4 in 2004-05. In 2005-06 as the company was ready to launch itself into the next phase of fast growth, several critical issues related to the liquidity and solvency of the company confront the management which are also discussed in the case study. CASE “How could a company have a ‘negative’ working capital and call itself successful?” Bo asked his friend Sharad. They had just joined Dabur India as Management Trainees and at the moment were