Abstract:
The present study made an attempt to understand motives of diversification and impact of diversification on financial health of diversified companies. For the purpose of analysis the study focused on the listed conglomerates in the Fast Moving Consumer Goods (FMCG) sector included in NSE Nifty FMCG Index for the purpose of measuring Financial Health and further the diversification classes. The principal data consisted of the Ratios and values of turnover from each firm's business segments, as well as firm equity capital, the profit for each year during the period considered. Using the Rumelts Classification, the companies have been categorized into three - Highly diversified, Moderately diversified and Undiversified - and made the comparisons between the performance parameters easy. The analysis revealed that the overall financial health of the companies was satisfactory. In other words, diversification has led to a sound financial performance of the companies. It is clear that all the companies under study have not performed equally well on all the ratios examined. However, some have performed consistently well on most fronts, while others had revealed uniformly mediocre results comparatively. Though it is difficult to strictly state that diversification has led to good performance, yet it can be emphasized that the diversified companies studied have performed well. It is possible that factors other than diversification could have contributed to this success.