Evaluating the Impact of Working Capital Management Components on Corporate Profitability: Evidence from Indian Manufacturing Firms
AbstractWorking capital management is a vital issue in financial decision making since it is a part of investment in asset and it directly affects the liquidity and profitability of the company. The study tries to investigate the relationship between working capital management components and the profitability of a sample of Indian manufacturing firms using a sample of 311Indian manufacturing firms for a period of 14 years from 1996-97 to2009-10 and have studied the effect of different variables of working capital management including the average collection period, inventory turnover in days, average payment period, cash conversion cycle and current ratio,debt ratio, size of the firm and financial assets to total assets ratio on the net operating profitability of Indian firms. The result suggests a strong negative relationship between the measures of working capital management including the number of days accounts receivable and cash conversion cycle, financial debt ratio with corporate profitability. Previous studies regarding the average days of accounts payable reported negative correlation of this variable and the profitability of the firm. But, we have not found any statistically significant relationship between these variables. Finally, we found insignificant negative relationship between firm size and its net operating profit ratio.
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Bibliographic InfoArticle provided by Academy of Economic Studies - Bucharest, Romania in its journal International Journal of Economic Practices and Theories.
Volume (Year): 2 (2012)
Issue (Month): 3 (July)
working capital management; corporate profitability; Indian manufacturing;
Find related papers by JEL classification:
- L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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