Finance Dilemma

8/7/2019 Finance Dilemma

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HorlicksA GlaxoSmith Kline Company

Analyzed B

y

Pradeep Kumar

Rishi Lakhanpal

Shyam Krishnan



Why dilemma

Introduction of new products like FOODLES ,

NUTRIBAR , etc.

Huge expected growth in sales of theseproducts that is by 20% next year.



Brief Histor y of The Company

2009 2008 2007 2006

Sales (net of excise duty)192,150.23 154,175.44 139,550.50 121,018.80

Profit before Depreciation, Amortisation and Tax3,95,88.46 3,27,66.31 28,861.40

23,327.40

Less: Depreciation 37,41.81 37,34.34 3,888.80 3,810.30

Less: Amortisation of:

Patents and Trade Marks 4,60.62 4,60.62 460.60 460.60

Profit Before Tax3,53,86.03 2,85,71.35 24,512.00 19,056.50

Less: Provision for Tax

Current Tax1,39,50.00 1,00,80.00 8,450.00 6,215.00

Deferred Tax -17,59.61 -10,69.61 -678.60 -353.30

Adjustment of Previous Years-2,61.37 1,62.73 -1.90 -2.50

Fringe Benefit Tax1,78.73 5,65.00 475.00 504.00

1,21,07.75 97,38.12 8,244.50 6,363.20

Profit After Tax 23278.28 18833.23 16,267.50 12,693.30

12.11% 12.22% 11.66% 10.49%

Source @ Horlicks Annual Report



Cash Conversion Cycle



Case in Consideration

� Lowering the credit limit by ½ month(resulting in 2.5% loss on expected

sales)

� Allowing a cash discount of 2% while lowering the credit period by one

month(expected sales doesn¶t change, 25% of total sales expected to be

on cash)

� Allowing a cash discount of 1.5%(expected sales increase by further 2%)

Next year we are expecting 20% increase in sales with respect to which

We are considering tightening our credit terms.



Case 1

Approx Sales 230580.28 230580.28

2.5 % loss in revenue 5764.507 5764.507

Approx Sales after 2.5% Loss on Sales 224815.773 224815.77

Credit Sales(75% of total Sales) 168611.8298 168611.82

Profit 1686.11 ( 1%) 843.05(.5%)

Gross Loss -4078.388703 -4921.44



Case 2

Approx Sales 230580.28 230580.28

75% 172935.21 172935.21

2 % cash discount 3458.70 3458.70

Total Revenue 169476.50 169476.50

Profit 4236.91(2.5%) 1694.76(1%)

Gross (Profit/Loss) 778.20 -1763.93



Case 3

Approx Sales 230580.28 230580.28

2% increase 4611.60 4611.60

Profit increase 553.39 553.39

75% 1763939.91 176393.91

1.5% discount 2645.90 2645.90

Gross Loss -2092.51 -2092.51



Most favourable

After analysing and taking into account

all factors and in present scenerio we would

prefferably move forward with the decision of allowing a cash discount of 2% while lowering

the credit period by one month.



Impact on marketing

We will emphasise less on our credit terms

Marketing more about cash discount of 2%

which is quite heavy considering the FMCGsector and volume of transaction.

Take steps to create pull demand which will

force dealers to stick with our product by

mens of massive advertisement and

promotions.



Impact on logistics

Will have to improve whole mechanism of

supplying by reducing the cycle time.

Take steps to make it even more costeffective.



Implication on HR policy

As company is looking forward for growth of

20% in sales so it would be shared with

employees by providing increment.

More efforts will be taken to improve

relations with our distributors by providing

more financial benefits .



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Finance Dilemma

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