Chapter - 2 On WC

Chapter 2
Working capital Management in Public and Private Sector Steel Industries in India
Table of Contents
Chapter 2 : Working capital Management in Public and Private Sector Steel Industries in
India
1. Introduction.........................................................................................................................................2
2. Objectives of working capital management........................................................................................2
3. Principle of working capital management...........................................................................................3
4. Importance of working capital management.......................................................................................5
5. CASH MANAGEMENT..........................................................................................................................5
5.1. Aspects of Cash Management:....................................................................................................6
5.2. Managing financial flows:............................................................................................................6
5.3. Determining the optimum cash balance:.....................................................................................6
5.4. Investing idle cash:.......................................................................................................................7
6. MANAGEMENT OF DEBTORS / RECEIVABLES.......................................................................................7
6.1. Factors Affecting the Size of Debtors:..........................................................................................7
7. MANAGEMENT OF INVENTORY...........................................................................................................8
7.1. Techniques of Inventory Management:.......................................................................................8
What quantity should be ordered?...............................................................................................................9
8. Literature Review................................................................................................................................9
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Chapter-2
Working capital Management in Public and Private Sector Steel Industries in
India
1. Introduction
Working capital management, or more specifically the management of current assets

and current liabilities, relates to the management of working capital. Financial decisions
made in the short term are the focus of capital management. Working capital
management aims to maintain a sufficient level of working capital by controlling the
company's current assets and current obligations. Several units have enough working
capital, but poor working capital management drives up expenses and lowers rate of
return. Working capital is managed effectively to save costs and contribute significantly
more to corporate success. When an enterprise fails, the lack of working capital is
sometimes cited as the primary cause, yet in the end, working capital may have been
mismanaged. Working capital management is similar to blood in a human body for a
business. If working capital management is carried out properly, efficiently, and
consistently, it will ensure the health of an organisation, making it the most important
component of a firm. Thus, there has been an increase in the demand for expert working
capital management in recent years.
2. Objectives of working capital management
The following are the primary goals of working capital management:
1. Managing an adequate level of working capital and having enough available as and
when needed is the main goal of working capital management to ensure the smooth
operation of the company.
2. Establishing a sensible balance between individual current assets and current liabilities
in order to achieve a sufficient safety buffer is another goal of working capital
management.
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3. It attempts to reduce various costs related to cash, receivables, and inventory as well as
the cost of liquidity in order to provide liquidity for satisfying obligations on maturity and
promote portability.
3. Principle of working capital management
Principle of Liquidity:
In determining a firm's liquidity, the ratio of net working capital to liquid cash has a
more significant impact than inventory. Assets such as government securities, bonds,
debentures, and shares, recognized for their ease of marketability, can be swiftly
liquidated when urgent funds are required. The absence of these resources poses a
challenge for the company in raising capital promptly, leading to missed
opportunities. Moreover, the company can enhance its profitability by strategically
investing any surplus capital in short-term investments. However, achieving this is
contingent upon effective working capital management, which is inherently linked to
higher liquidity
Principle of Cost of Capital:
The choice of capital employed for funding working capital significantly influences
the level of risk assumed by a company, along with the associated potential for profit
or loss and the overall cost of capital. This principle emphasizes that distinct financial
sources entail different capital costs. It is crucial to recognize that risk and the cost of
capital exhibit an inverse relationship. Consequently, as the level of risk capital
increases, the cost of capital decreases.
Principle of Circulation:
The working capital cycle should be as short as possible in a real working capital
management. In other words, the working capital flow should be as quick as possible.
The management of working capital must be more precise the shorter the period of
circulation.
Principle of Maturity of Payment:
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The risk increases and vice versa with the size of the differences between the
maturities of a firm's short-term debt investments and its flow of internally generated
money. A business should make every attempt to link the payment maturity to the
flow of internally generated money. The maturities of a company's short-term debt
instruments and the flow of internally generated money should be as close to equal as
possible because a larger difference creates more risk. But for any short-term loan
payment, there should be a safety margin.
Principle of Adequacy:
Businesses that manage their working capital well consistently generate better profits
than those that do not. Most businesses frequently have excess working capital, but
they also frequently have insufficient working capital. Because they don't have
enough working capital to cover their debt, they must borrow money at a higher
interest rate, which reduces the profitability of the business. On the other hand, if
there is excess working capital, the profitability of the business will naturally be
lower than it would be with good working capital management.
According to this idea, a company needs to have enough working capital to get a
greater rate of return on its invested capital.
Principle of Risk Variation:
The inability of a company to keep enough current assets to pay for its obligations
is referred to as risk. The degree of risk that a company assumes also fluctuates,
which increases the potential for profit or loss. Working capital should be considered
in relation to the purchase or sale of fixed assets.
According to this theory, there is a correlation between the level of risk a corporation
takes on and its rate of return, meaning that the more the risk, the greater the potential
for profit or loss. The degree of risk rises as working capital as a percentage of
revenue declines. The likelihood of profit or loss also rises as the level of risk does.
Therefore, while working capital increases, risk also increases and vice versa. The
potential for gain or loss is also negatively impacted. The management alters the
amount of their working capital based on their attitudes. By maintaining a higher
level of working capital, a conservative management seeks to reduce risk, whereas a
liberal management prefers to increase risk by lowering this amount. However,
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management should strive to maintain a level of working capital that maximises a

company's rate of return. The additional loss associated with a reduction in working
capital investment exceeds the incremental gain associated with that investment at
this level.
Principle of Equity Position:
As long as the firm's liquidity position improves, capital should be put into each
working capital component.
His guiding premise is that a firm's equity position should be able to adequately
justify the amount of working capital invested in each component. Every rupee spent
on working capital should increase the company's net worth.
4. Importance of working capital management
Because it is essential to keeping a company operation operating, working capital

management is a crucial aspect of any business organisation. The importance of working
capital can also be determined by the fact that the lack of current assets and their
improper management have frequently been identified as the primary reasons for
business failure. A major disadvantage for business is having insufficient working
capital, whereas fixed capital investments create manufacturing capacity. The
exploitation of that capability is made feasible by working capital.
Underutilization of capacity is fixed by management of present assets. Therefore,

effective working capital management is crucial for any corporate organisation. The
necessity of working capital management is amply illustrated by the following
considerations namely-
 Minimization of the risk
 Increase in Value of goodwill
 Increase in efficiency
 Increase in profitability
 More productivity and use of fixed assets
5. CASH MANAGEMENT
The money management of a company is concerned with the inflows and outflows of
cash, determining the minimal cash balance at a specific period, and investing excess
cash in short-term investments. The following are the justifications for managing cash:
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1. Cash is the most significant liquid current asset for paying current
liabilities.
2. If a company has more cash on hand than it actually needs, it must properly
manage this surplus of unproductive cash.
3. Estimating the present influx of cash is particularly challenging.
4. There is almost little chance between cash inflows and withdrawals.
5. Cash management is necessary because it makes up a modest fraction of the
company's overall current assets but is a very crucial asset..
5.1. Aspects of Cash Management:
The importance of cash management underscores the need for the company to formulate
strategies across four key dimensions. Foremost, it is imperative to assess cash inflows
and outflows, culminating in the creation of a comprehensive cash budget. This budget
serves as a pivotal tool for determining any surplus or deficit in financial resources.
In instances of financial shortfalls, a judiciously crafted cash budget becomes

indispensable. Succinctly put, effective cash planning is essential for gaining insights into
the cash position over the planning period. The utilization of cash becomes a manageable
and anticipatable aspect through prudent planning and execution.
5.2. Managing financial flows:

The management of financial and cash flows involves pursuing two primary
objectives:
Firstly, implementing a decentralized collection system is crucial to expedite cash

collection processes. This step is essential to maximize the efficiency of cash inflows.
Secondly, the strategy involves deferring cash payments for as long as is practical.
Advantages lie in postponing payments, as early disbursement does not offer any
significant benefits. Deliberate delays in payment processing contribute to the availability
of cash resources.
5.3. Determining the optimum cash balance:

The responsibility of maintaining the ideal cash balance falls on the financial
controller. Sustaining an optimal level of cash balance is essential to consistently meet
obligations such as current bills and employee salaries. Inadequate cash represents a
costly deficiency, while an excess cash balance remains a non-earning asset.
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Consequently, the economy can be adversely affected by either an insufficient or surplus

level of resources.
5.4. Investing idle cash:

The prudent investment of idle cash is the fourth component of cash management. Extra
money should be put into marketable securities that can be quickly and easily changed
back into cash.
When choosing securities, the three primary factors of marketability, safety, and maturity
should be taken into account.
6. MANAGEMENT OF DEBTORS / RECEIVABLES
When credit is extended to consumers, the finances of the company are blocked, and
debtors and receivables rank second and third in importance to inventories as current
assets in India. As a result, working capital is used to pay for the time proceeds. Due to
the significant amounts that are blocked in debtors, competent management and thorough
analysis are needed.
The two primary goals of debtor management are to achieve the best possible
credit policy and the best possible sales value.
 to limit the cost of loans and maintain it as low as possible.
 to ascertain the ideal number of borrowers.
It is important to remember that the goal of credit management is not to maximise sales.
6.1. Factors Affecting the Size of Debtors:
The elements that determine the size of debtors should be taken into account before
choosing the best credit policy. The following are the key elements of the credit policy:
1. Conditions of credit: The period of credit and the terms of the cash discount are
the two primary elements of terms of credit.
2. Credit standards: If credit standards are lax, sales and receivables levels will
naturally be low. Conversely, if credit criteria are loose, sales and receivables
levels will naturally be high.
3. Collection policy: If a company adopts harsh policies, it may lose its loyal
consumers, and if a company adopts policies for collecting debts, the number of
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debtors may rise. Therefore, a company should adopt the best possible collection
policy.
4. Credit policies: The business should adhere to sound credit policies. Before
extending financing, it is important to look into the reputation of the prospective
buyers. Banker's inquiries, trade references, credit bureau reports, and the clients'
financial records can all be used to acquire credit information. For the aim of the
credit procedure, credit analysis, credit limitations, collection methods, and similar
activities should be included.
7. MANAGEMENT OF INVENTORY
Companies typically maintain inventory to meet diverse demands, including the need
to facilitate seamless manufacturing and sales operations. The overarching goal is to
strike a balance that minimizes inventory investment and enhances overall profitability.
These demands, however, pose inherent contradictions. Extremes in either direction—

having too much or too little inventory—are fraught with risks. Excessive stocks lead to
elevated carrying costs, while insufficient inventories can bring manufacturing to a halt,
leaving machinery idle due to a shortage of raw materials.
Hence, the imperative for businesses is to operate within a range that avoids such
extremes, ensuring optimal inventory investment throughout the year. The primary
objective of inventory management is to maintain this ideal balance. The interconnected
goals include:
1. Ensuring a consistent supply of raw materials to sustain uninterrupted

production.
2. Maintaining an adequate reserve of raw materials during periods of scarcity
and price fluctuations.
3. Preserving the final stock in optimal condition to facilitate effective client
service.
4. Minimizing transportation costs.
5. Exercising control over inventory investment to sustain the ideal inventory
level.
7.1. Techniques of Inventory Management:
Two different approaches are employed for inventory management;

1. The conventional approach of inventory management: This strategy compares the
turnover rates of raw materials, works-in-progress, and finished commodities. Turnover
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is calculated, and comparisons between factories in the same industry or within a single
plant for a specific period of time are possible. Ratio analyses, however, have their own
drawbacks.
2. Scientific inventory management method: There are two primary issues with inventory
management;
What quantity should be ordered?

When should I place my order?
(i) Economic ordering quantity (EOQ): One of the main issues with inventory
management is determining how much inventory has to be bought when it
needs to be renewed. The business must choose the lots in which it must make
purchases.
The issue of how much to order has to do with figuring out the optimal
economic ordering quantity (EOQ).
(ii) Reordering point: When should inventory be ordered? This is the next issue in
inventory management. With the aid of the lead time and average usages, we
can determine the re-ordering level. The re-ordering point specifies the
inventory level at which an order should be placed.
(iii) Establishing the stock level: For effective inventory management, the
minimum stock level and the maximum stock level should be established. The
goal of establishing the minimum level of stock is to prevent production from
suffering from a lack of stock, and to prevent idleness and interest loss caused
by an excess of raw material stock.
(iv) ABC analysis: Inventory includes many item types. Equal control over every
object is not necessary, and it is also not a good idea. As a result, the objects
should be categorised according to their price. Based on cost, the ABC analysis
is created. Since the high-value items are designated as "A" products, they
would be subject to the strictest controls. The 'C' things are the lowest value
goods, so they would be under basic control. The 'B' items are in between the
'A' and 'C' items, therefore the control on the 'B' items should be greater than
the 'C' items and less than the 'A' ones.
8. Literature Review
In 1989, Verma examined "Working Capital Management in the Iron and Steel Industry"
by selecting a sample of both commercial and public sector organisations from the years
1978–1979 through 1985–1986. Tata Iron and Steel Company Ltd. (TISCO), a private
company, and Steel Authority of India Ltd. (SAIL), a public company, as well as Indian
Iron and Steel Company (IISCO), a fully owned subsidiary of SAIL, were included in the
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sample. The study found that the private sector has a distinct advantage over the public
sector in terms of working capital management. This advantage was demonstrated by
employing the methodologies of ratio analysis, growth rates, and simple linear regression
analysis. Simple regression analysis showed a functional relationship between working
capital and sales. The survey also revealed that, in comparison to the standards advised
by the Tondon Committee, every company in the sector had borrowed money from banks
excessively to cover their working capital needs.
Amalendu Bhunia investigated "A Study of Liquidity Trends on Private Sector Steel
Companies in India." Tata Steel Ltd. and Lloyds Steel Industries Ltd. are the two private
steel firms the researcher chooses to focus on. The study covers a nine-year span, from
1997–1998 to 2005–2006. The secondary data are the foundation of the investigation.
There were many different accounting and statistical methods utilised, including ratio
analysis, chi-square test, trend indicators, and time series analysis.
The main conclusions were as follows:
i. All of the study's selected companies, with the exception of TSL and LSIL, had
a raw materials inventory problem.
ii. All of the chosen steel companies must advance their overall inventory
management.
iii. Net current assets should be maintained in the correct composition.
iv. Overall, the selected organisations for the study do not have adequate
receivable management.
Dr. Monika Maheshwari, assistant professor at the Shri Vaishnav Institute of

Management in Indore, conducted a study from 2008–09 to 2012–13 with the title
"Measuring Efficiency and Performance of Selected Indian Steel Companies in the
Context of Working Capital Management." SAIL, TSL, JSW, and ESL have been chosen
as the study's participants. Ratio analysis, mean, standard deviation, and the ANOVA test
are methods used for data analysis. The main conclusions were as follows:
i. Overall, the performance of all the steel companies that were chosen was quite
satisfactory during the study period, with a few exceptions. For example, Tata
Steel Ltd. managed to post impressive profits and a good EBIT margin despite
the challenging economic climate and intense competition, while SAIL
achieved the highest average return on capital employed.
ii. In terms of liquidity, public sector organisations like SAIL do better than
private sector businesses.
iii. Tata Steel Ltd.'s Cash Conversion Cycle (CCC) is negative and getting shorter,
which indicates poor working capital management.
iv. However, Tata Steel Ltd.'s lowest average assets turnover ratio also
demonstrates that the business is probably not using all of its available
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resources. JSW Steel Ltd.'s rising total assets turnover ratio shows that the
company is expanding into its capacity, which is a positive indicator for the
company's growth.
Working capital as a percentage of total capital employed has received little attention in
India. A research named "Structure of Working Capital" was carried out in 1966 by the
National Council of Applied Economic Research (NCAER). The aforementioned study
examined the composition of working capital for the fertiliser, cement, and sugar
industries from 1959 to 1963. The key conclusions were as follows: 1. Inventory
accounts for 74.06%, 63.10%, and 59.58% of sugar, cement, and fertiliser, respectively.
The sugar business experienced the opposite trend from the cement and fertiliser
industries in terms of the efficient use of working capital, and inventory control was
given insufficient attention.
Liquidity Management Efficiency of Indian Steel Companies was the subject of a case
study done by Dr. Amalendu Bhunia. This study examines the relationship between the
liquidity from the CMIE database. In multiple correlation and regression analysis,
profitability and liquidity management indicators are modelled as a linear regression
system for the time period from 2002 to 2010. A descriptive statistical analysis reveals
that liquidity and solvency position relative to debt is quite satisfying and that very
efficient liquidity management is identified, although liquidity position has little bearing
on profitability. Multiple regression analyses support a weaker correlation between
profitability and working capital management.
As a result, firm managers should pay close attention to liquidity management, especially
when it comes to unexplained variables used to increase shareholder wealth.
Paper assessing the working capital performance of cipla limited by Joshi, Lalitkumar,
and Ghosh, Sudipta (2012). Utilizing the company's annual reports from 2004–2005
through 2008–2009, some main data and secondary data were obtained for the study. The
study used statistical and economic methods, including financial ratio analysis.
Throughout the research phase, the chosen ratio likewise performed satisfactorily.
Additionally, there was a strong negative correlation between liquidity and profitability,
indicating that organisations with surplus liquidity were also profitable.
Bansal (2001)-researcher analysis the working capital management in Himachal Pradesh

agro sectors for the timespan of 1985-86 to 1994-95 with the help of different financial
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tools that really define working capital ,cash inventory, receivable as well as production
capacity have not been managed properly by the firm under study.
Refuse, Emaynard (1996)-the study suggested that obtaining creditors to increase

operating capital was a beneficial method. According to a poll conducted by a small
business trade group and private businesses, debtors' accounts were often paid more than
50 days after the deadline. The poll also showed that the financial managers are in charge
of this control.
N.K. Agrawal conducted a study on the 'Management of Working Capital' spanning from
1966–1967 to 1976–1977. The study encompassed 34 significant manufacturing and
trade public limited enterprises in the private sector, covering aspects such as working
capital financing, inventory management, accounts receivables management, and cash
management. The primary conclusions drawn from this study include:
i. Industries did not effectively plan their working capital requirements.

ii. The size of working capital in relation to sales varied greatly among industries.
iii. The majority of industries struggled to efficiently manage liquid resources.
iv. The use of cash was not found to be profitable.
v. Receivables management was identified as subpar.
These findings shed light on the challenges and shortcomings in working capital
management across various industries during the specified period.
The study made the suggestion that Indian businesses understand the value of careful
working capital planning, good cash flow management, prompt debt collection, and
decreased inventory investment. Dr. N. K. Agrawal attempted to make broad
generalisations about all types of industries, but this seemed impossible.
Another research by Ashim K. Mukherjee on the "Management of Working Capital in

Public Enterprises" looked at 20 manufacturing public sector enterprises that were totally
or partially controlled by the Central Government. The study was only conducted during
a five-year span, from 1974–1975 to 1978–1979, in total. The researcher looked at the
relative benefits of internal and external sources of funding, the extent to which working
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capital resources were used, the sufficiency of working capital financing, liquidity,
structure, and structural working capital drivers. The main conclusions were:
i. There was a very strong inverse relationship between owners' profitability and
liquidity.
ii. The overall volume of sales had a significant impact on the total quantity of
receivables.
Additionally, Ravi K. Jain investigated the various facets of working capital management
while studying "Working Capital Management of State Enterprises in India." Working
capital financing, receivables management, inventory control, and cash management have
all been covered separately. The study's time frame was from 1979 to 1984. The study
featured ten carefully chosen manufacturing, trading, financial, and service-motivated
businesses. The aforementioned study made the following recommendations:
i. State-owned businesses should make an effort to align their working capital

with market trends.
ii. In order to exert an effective control over the total inventory, suitable
Performa identifying the location of various inventory components at
regular intervals should be adopted.
They should
iii. regularise their cash flows and decide on the ideal cash balance to maintain.
iv. Businesses should increase the efficiency of their debt collection efforts and
decrease the amount of money held in accounts receivable..
In his paper "Problems of Working Capital," R.K. Mishra specifically mentions public
companies in India and focuses on just six major public enterprises from 1960–1961 to
1667–1668. The main conclusions were:
i. The chosen units were unable to use working capital effectively.
ii. It was discovered that the inventory was overstocked in every unit.
iii. The accumulation of inventories was caused by a lack of inventory control, and
iv. The chosen units maintained an adequate amount of cash and close-to-cash
assets.
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A study on "Working Capital Financing by Public Sector Banks" of cotton textile mills
administered by N.T.C. from 1979–1980 to 1983–1984 was conducted by Dr. Bhairav H.
Desai and Ramesh B. Darjee. The Tundon Committee's methods I, II, and III of bank
financing have formed the foundation for the studies of the working capital gap and bank
financing. The management of N.T.C. Ltd. may have prevented the significant
underfinancing by banks, according to the conclusions. Even with the aid of inventories,
it might have gotten a sizable amount more money from banks. Inventory must be
reduced right away, especially finished goods inventory and the amount of working
capital that is encumbered by debt.
Dr. J.M. Naik covered the years 1981–1982–1987–1988. The purpose of the
aforementioned study is to determine whether or not the cooperative sugar factories
handled their working capital properly and efficiently.
Between 1978–1979 and 1982–1983, the scholars Kamtha Prasad Singh, Anil kumar
Sinha, and Subhas Chandra Singh researched "Various Aspects of Working Capital
Management in India." Fertilizer Corporation of India Ltd. (FCI) and its daughter
companies Hindustan Fertilizer Corporation Ltd., National Fertilizer Ltd., Rashtriya
Chemicals and Fertilizers Ltd., and Fertilizers (Projects and Development) India Ltd.
comprised the sample, and results of their joint-sector working capital management were
compared to those of Gujarat State Fertilizers Company Ltd. Based on ratio analysis and
replies to a questionnaire, the investigation found that the FCI and its daughter units'
losses were mostly the result of ineffective working capital management because its
current assets had not been turned over frequently. With regard to each of its constituent
parts, especially stores and spares, FCI and its subsidiary entities experienced significant
overstocking of inventory. Similar to the quantity of payables, their turnover was also too
low. However, compared to the amount needed for operations, FCI and its daughter
companies had substantially less cash and liquid resources. Due to the quick rise in
current liabilities, long-term funds have only been able to finance a small percentage of
current assets in terms of working capital financing. These endeavours have very little
internal profitability that could be used to finance working capital.
Using accounting and statistical tools, Garg examined the "Working Capital Trend and
Liquidity of 8 Haryana Government Owned Industrial Enterprises in Haryana" during
1978–1979 and 1987–1988. The survey shows that most businesses had trouble finding
enough money to pay their other debts and buy raw materials because of substantial
investments in current assets. The operating effectiveness of the firm under consideration
has also been negatively impacted by the fund blockage in current assets.
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Majumdar examined the financial accounts of 20 companies to determine the "Pattern of

Financing the Corporate Working Capital in India." For the years 1981 to 1990, there
were 10 from the private and 10 from the public sectors. The researcher has employed
financial instruments and statistical methods for analysis. According to the study,
borrowings account for a large portion of working capital financing, and cost has very
little influence on the choice of working capital source.
Between 1982–1983 and 2002–2003, Jafar and Sur conducted research on the "Efficiency
in Management of Working Capital in National Thermal Power Corporation Ltd." By
adjusting to the new environment brought about by liberalisation, globalisation, and
competitiveness, the corporation successfully managed its working capital during the
post-liberalization era, according to study that used financial tools and statistical
approaches.
Lazaridis and Tryfonidis (2006) - researchers examined the connection between corporate
profitability of listed companies in Athens stock exchange and working capital
management. The researcher uses a variety of statistical characteristics, including the
optimal level of each component (accounts payable, receivables, and inventory).
Makori Danial (2013), is crucial to a company's profitability. The ideal working capital
amount for balancing a company's profit and liquidity. Data for 5 manufacturing and
construction companies in Kenya were gathered in the national securities exchange
between 2003 and 2012. Various financial tools and presentational methods are employed
when presenting statistical data. Finally, it may be said that by lowering the number of
days that an account is past due, management of organisations increases value for
shareholders.
Mehrotra Shweta (April 2013), the researcher determined that every institution, whether
public, private, or profit-oriented or not, needs an acceptable quantity of operating
capital. A business must have enough capital to purchase raw materials and pay for daily
operating costs. These costs' total funding sources are all known to working capital. The
working capital practises of five FMCG sectors are examined in this article using ratio
analysis and financial statement analysis to determine the level of working capital
efficiency. Working capital management, according to researche
Raok. v. and N.chintarao (1991) - The study focuses on a small number of public
businesses in Karnataka's manufacturing sector in assessing the effectiveness of business
firms' use of working capital. The study reevaluated the importance of working capital
investments in relation to total investments and discovered that working capital planning
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and control were both disorganised and efficient as a result. The pressing necessity to
provide working capital management your complete attention.
Khan Gul (2013) looks on the effects of working capital management in Pakistan's small
and medium-sized businesses (SME). The study's time frame is from 2006 to 2012. For
analysis, there are many secondary data tools being used, including tax offices. The
sources utilised to determine profitability are the quantity of accounting receivables, the
cash conversion cycle, and the debt ratio. The association between working capital
management and performance of SME in Pakistan was examined using regression
analysis.
Singh P.K. (2004)-The study aimed to understand the importance of managing working
capital by looking at various ratios and the operating cycle during a 7-year period from
1992 to 2002. He reached a conclusion after utilising a number of tools and methods. The
company's liquidity position was strong and reflects the correlation between the
percentage of current assets, loans and advances, inventories, cash on hand, and bank
balances. The report highlighted the necessity for effective debtor management. which
represented the largest percentage.
In order to study the "Impact of Working Capital on Profitability in Sugar Industry in

Tamil Nadu," Vijaykumar and Venkatachalam chose a sample of 13 enterprises,
including 6 co-operative and 7 private businesses, and did so from 1982–1983 through
1991–1992. On working capital and profitability ratios, they performed basic correlation
analysis and multiple regression analysis. Through correlation and regression research,
they came to the conclusion that the liquid ratio, inventory turnover, receivables turnover,
and cash turnover ratio all had an impact on the profitability of the sugar sector in Tamil
Nadu. By using regression analysis, they also calculated the demand functions for
working capital and its constituents, including cash, receivables, inventories, gross
working capital, and net working capital. They displayed how sales and interest rates
affected working capital and its constituent parts. In all equations involving working
capital and its scale components, the coefficient of sales was greater than one when only
sales were considered as the independent variable. Sales elasticity was once more greater
than unity in demand functions of working capital and all of its components, with the
exception of cash, when sales and interest rate were treated as independent variables.
Capital expenses showed negative indications in all equations, although they were only
statistically significant for inventory, gross working capital, and net working capital,
demonstrating the negative effects of interest rates on ivestments in working capital and
its components. As a result, the study demonstrated that both sales and carrying costs had
an impact on the demand for working capital and its components.
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Using financial instruments and statistical methods, Bhunia evaluated the "Management
of Working Capital of Steel Authority of India Ltd and Indian Iron and Steel Company
Limited" from 1991–1992 to 2002–2003. Findings show that both businesses operated
with insufficient working capital, weak liquidity, and ineffective management of
inventories and receivables during the time.
Beaumont and Bageman's (1997) study, working capital is a crucial element in helping a
corporation make sound financial decisions. The trade-off between profitability and
liquidity was reached by the best working capital management strategy. The purpose of
the paper is to present empirical data regarding how working capital management affects
the profitability of mall scale industries.
Beydokhtiabbastaleb (2007), small-scale industries are essential for economic

development and generate a sizable portion of India's exports and employment.36 million
SSI units in the nation manufacture more than 800 items as a result, employing around
million people. The SSI units are typically quite small in size and organised on a
proprietary or partnership basis, which results in a weak capital base for these units. In
terms of capital formation, they are in a bad position. The key point is that there is a
positive correlation between company growth and working capital and that the success or
failure of an industry or enterprise depends in great part on how effectively financial
resources are used and managed.
Sharma Ashok and Kumar (2011) included the impact of working capital on the
profitability of Indian enterprises in their analysis. The researcher's conclusions diverge
from numerous global markets. The outcome demonstrates a positive correlation between
working capital management and profitability in Indian enterprises. The study displays an
inventory of the number of days and the number of days account. Payment has a negative
link with business profitability, although the number of days accounts receivable and the
cash conversion period have favourable relationships.
Nor ediazharbinti mohammad (2010) attempts to close the knowledge gap about working
capital management and its impact on the performance of Malaysian listed firms as
measured by market valuation and profitability. There are 172 listed companies, and one
should be chosen at random for analysis using a variety of tools and methods. The final
step in operating successfully and efficiently is to think strategically and operationally.
17
Chapter 2
Agrawal Anusha (2011), working capital management integrated fully with current assets
and liabilities, making it a standout technique for asset and liability planning and
control.While net working capital excludes current obligation, the working capital
statement includes all things included on a company's balance sheet as short-term current
assets. This study analyses the auto industry's profitability, liquidity, and risk trade-offs.
Working capital is a word for commercial investments made in short-term assets.
This study, by Chatterjee Saswata (2010), concentrated on the value of fixed and current
assets in the operation of any company or organisation. Profitability and liquidity are the
two types of company activity that are measured. In the business, a phenomena has been
noticed. Because of the reduction in working capital relative to sales, the majority of
businesses increase the margin for profits and losses.
Shin and Soenen (1998) - The researchers specify that effective working capital
management may be significant for generating value for the shareholders.The study has a
direct effect on profitability and liquidity. Using correlation and regression analysis,
company profitability and risk-adjusted stock return were primarily evaluated. This study
determines the association between the length of the net trading cycle and industrial and
capital intensity.
Mohammad Morshedur rehman (2011) - The researcher looked at how significant

Bangladesh's textile industry is. However, the industry's profitability is unsatisfactory,
prompting an examination of the textile sector's profitability and working capital
situation. The numerous parameters, such as co-relation, regression, and matrix, are also
utilised for measurement. Consequently, discover that effective working capital
management increases Consequently, discover that effective working capital
management increases
Kazmi Azar and Mohd. Amirkhan (1999) defined working capital analysis and used a
variety of instruments, including cash, inventory management, and account receivables
management. The study only covers a brief time span, therefore comparisons based on
the global financial industry are possible. As a result, the research learns the value of
working capital in an industry that is fiercely competitive.
18
Chapter 2
Pathania used ratio analysis to study "Working Capital Management in Himachal Pradesh
State Co-operative Agricultural and Rural Development Bank" between the years 1990–
1991 and 1994–1995 The examination reveals that the bank under investigation did not
use funds profitably and efficiently, which had an impact on it.
Bansal used financial instruments to research "Working Capital Management in

Himachal Pradesh Agro Industries Corporation Limited" from 1985–1986 to 1994–1995.
According to the report, the company under investigation chose a conservative policy for
financing current assets, which left it with insufficient operating capital. The corporation
under investigation has not managed cash, inventory, receivables, or production capacity
well.
Using financial instruments, Batra and Sharma examined "Working Capital Management
Practices in Goetz India Limited" from 1989–1990 to 1993–1994 throughout this time.
The investigation reveals that while working capital management was generally in a
reasonable position, there were some inadequacies in the management of inventory,
receivables, and payable that need to be addressed.
Barot Haresh (2012) - This study analyses the performance of the working capital
management function on the profitability of CNX pharmaceutical businesses listed on the
national stock exchange of India. They used the financial reports, and information was
gathered for the years 2005–2006 to 2009–2010. Regression analysis was utilised to
show that account receivables and account payable are responsible for explaining
profitability. The SPSS software package was used to investigate and collect data. He
came to the conclusion that working capital should be managed more effectively in order
to boost a company's profitability.
Between 1992–1993 and 2001–2002, Ghosh and Maji made an effort to investigate the
"Efficiency of Working Capital Management of the Indian Cement Companies." To
quantify the effectiveness of working capital management, they calculated three index
values: performance index, utilisation index, and overall efficiency index. They did not
use working capital management ratios. They investigated how quickly individual firms
could reach their objective levels of efficiency during the research period by utilising
regression analysis and industry norms as a benchmark. They discovered that some of the
sample enterprises successfully increased efficiency during these years.
Vijaykumar and A. Venkatachalam (1996)—Tamilnadu Sugar Corporation is the subject

of their study, which covers the years 1985–1986 to 1993–1994. That suggests that the
company maintains a reasonable level of working capital. Long-term money were used to
19
Chapter 2
pay off short-term obligations as well as surplus obligations. This study period also had
an impact on profitability
Bigger, Gill, and Mathur (2010) examined the connection between 88 American
companies listed on the New York Stock Exchange's Main Market and their working
capital management and profitability. Pearson bivariate, correlation analysis, and
weighted least squares regression techniques were used to examine the data. They
discovered statistical data on the profitability and cash conversion cycle. The ratio
analysis approach is used to calculate gross operating profit.
Dong (2010), the researcher, said that working capital management has an impact on a
company's profitability and liquidity. The analysis included data for the years 2006 to
2008 for Vietnam-based companies that were listed on the stock market. His study
discovered a substantial negative association between a number of variables
(profitability, conversion cycle, and its connected elements). It should be mentioned that
a loss in profitability is caused by an increase in the cash conversion cycle, which
shortens the number of days that accounts receivable and inventories are outstanding and
increases the profitability.
Eljelly (2010) - Effective liquidity management requires careful planning and current
asset and current obligation control, according to Eljelly . In Saudi Arabia, joint stock
businesses' cash conversion cycles and current ratios were used to measure the
profitability relationship. In this study, it was discovered that the cash conversion cycle
was a more important indicator of liquidity than the current ratio when it came to
determining profitability through correlation and regression analysis. Therefore, it was
evident that in the Saudi sample under consideration, profitability and liquidity indicators
like current ratio and cash gap had a negative correlation.
Mathuva (2010) explores the impact of working capital management on business

profitability in this study. He looks at which companies are the most successful in terms
of how quickly they can collect payment from clients. 30 companies are listed on the
Nairobi Stock Exchange, and a regression model was employed to analyse the data from
1993 to 2008. Finally, the analysis found an extremely substantial positive strong positive
association between profitability and average payment duration.
Using a sample of 30 companies listed on the Nairobi Stock Exchange for the years 1993
to 2008, Mathuva investigated the "Influence of Working Capital Management
Components on Corporate Profitability." To analyse the data, he employed fixed effects
regression, pooled ordinary least squares, and Pearson and Spearman's correlation. The
20
Chapter 2
main conclusions of his research were that there is a highly significant negative
correlation between profitability and the time it takes for businesses to collect payment
from customers, a highly significant positive correlation between profitability and the
time it takes for businesses to turn inventories into sales, and a highly significant positive
correlation between profitability and the time it takes for businesses to pay their creditors.
Chawla, P., Harkawat, S., and Nandkhairnar, I. (2010) - The researcher discovers a
connection between working capital management and company liquidity and
profitability. In India, there are three petrochemical firms. The study used (CCC) cash
conversion cycle, inventory turnover, receivable collection period, creditor's settlement
term, and current ratio to analyse data for the years 2004 to 2009.
Shriniwas K.T. (2009) - The researcher tried to investigate working capital management
at Karnataka Power Corporation Limited using ratio analysis.
This study compared conventional and alternative working capital measurements and
ROI, with a focus on industrial enterprises listed on the Johannesburg Stock Exchange
(JSE). It has been determined that a company's financial standing affects its efforts to
boost production and net profit. Additionally, it was found that although the company's
earnings were rising annually, its funds were not being used effectively.
Between 1999 and 2005, Pandey and Upadhyay conducted a study to "Evaluate the
Efficiency of Management of Working Capital in Bokaro Steel Plant." Results indicate
that while the management of inventory and receivables was sound, the position of
payment of liquidity was satisfactory.
Raheman Abdul and Mohamed Nasr's 2007 study, in which he noted that working capital
management and its impact on business profitability as well as liquidity. He chose 94
Pakistani companies to list on the Karachi Stock Exchange during a six-year period, from
1999 to 2004. He made use of a variety of tools and approaches for regression and
correlation analysis of people. Identify working capital management's negative and
positive relationships in a firm.
Paul (2007) conducted a thorough investigation into the working capital management
practises at the motor industries business limited. During the five-year data collection
period from 2001 to 2005. Different types of ratio analysis are used for analysis purposes.
21
Chapter 2
Finally demonstrates that the company under study's working capital has not been
managed effectively or efficiently.
Kolkata's EIILM School of Business EIILM University) has taken on the assignment to
look at the company's "Process of Working Capital Management" for the past 10 years,
starting in 1993–1994 and ending in 2002–2003.
i. To evaluate the firm's working capital management strategies for effectiveness.
ii. To evaluate the firm's solvency and short-term liquidity.
iii. To determine how the company's commercial operations are impacted by the
company's working capital situation.
iv. To suggest corrective actions to address the issues the company is
experiencing.
Pradeep Singh conducted an empirical study named "Inventory and Working Capital
Management in IIFCO & NFL" that spans the years 1994–1995 to 2005–2006. The
researcher use tools and procedures for data analysis such as G.R. Regression analysis,
mean value analysis, and ratio analysis. Overall, the researcher finds that IIFCO and
NFL's working capital positions are adequate, but IIFCO has to make improvements to its
inventory. IIFCO, however, did not keep and use the inventory adequately during the
research period. While other current assets are effectively used and managed, inventory
makes up the majority of the current assets in both businesses.
The amount of the inventory has a significant impact on the liquidity situation, but other
factors like debtors, loans and advances, cash and bank balances, bills receivable, etc.,
also play a role. However, this study discovered that inventory has to be improved right
away. In order to prevent a disruption in liquidity, NFL management must work to make
use of the inventory and maintain it in accordance with the needs.
A panel of 8872 small to medium-sized businesses from Spain were gathered by Garcia-
Terual ET for the years 1996 to 2002. Using panel data methods, they investigated the
"Effect of Working Capital Management on SME Profitability." The findings, which hold
up in the face of endogeneity, showed that managers might add value by cutting back on
their stocks and the number of days their accounts are past due. Additionally, reducing
the cash conversion cycle raises the company's profitability.
The "Working Capital Management of Fertilizer Industry of Gujarat" is analysed by

Virendra C. Jani utilising a variety of techniques, including ratio analysis, index number,
Chi-square test, one way ANOVA, etc. Data from 1996–1997 to 2004–2005 are covered.
The researcher discovered that there were notable disparities between the current ratio,
22
Chapter 2
quick ratio, stock turnover ratio, cash position ratio, and creditor turnover ratio of the
fertiliser companies over the course of the study period.
Dalbir Singh, a commerce lecturer at the Government PG College in Bhiwani, studied in

India about "Working Capital Management of Aluminum Industry." Researchers are
unable to examine every aluminium industry. As a result, the study will primarily focus
on the Primary Aluminum Producing industry, which includes National Aluminum Co.
Ltd. (NALCO), Bharat Aluminum Co. Ltd. (BALCO), Hindalco Industries Ltd.
(HINDALCO), Indian Aluminum Co. Ltd. (INDAL), and Madras Aluminum Co. Ltd.
(MALCO). The study is focused on the seven-year period, or 1997–1998 to 2003–2004.
Working capital needs were measured by the researcher using working capital
requirements. The study would compare the working capital regulations in use in the
primary aluminium producing sector. The study also made an effort to examine the
connection between profitability and liquidity.
The "Efficiency in Management of Working Capital in British American Tobacco

Bangladesh Company Limited" is the subject of Sayaduzzaman's investigation. The five-
year span of the study is from 1999–2000 to 2003–2004. The researcher used statistical
methods and financial tools to investigate the case and discovered that British American
Tobacco Bangladesh Company Limited's working capital management is extremely
effective.
Hemedri I. Tikavala's study, "Working Capital Management of the Surat People's

Cooperative Bank Ltd," which spanned the years 1999–2000 to 2003–2004, focuses on
the challenges that the Surat Peoples Cooperative Bank Ltd. experienced with working
capital management.
A cross-sectional study by Lazaridis and Tryfonidis using a sample of 131 companies

listed on the Athens Stock Exchange from 2001 to 2004 revealed a statistically
significant relationship between profitability, as determined by gross operating profit, and
the cash conversion cycle and its constituent parts. They believe that managers can
generate profits for their companies by properly managing the cash conversion cycle and
by maintaining each component of the conversion cycle at an optimal level based on the
results analysis of annual data using correlation and regression tests.
23
Chapter 2
Between 2001 and 2005, Paul applied ratio analysis to a thorough "A Study of Working
Capital Management in Motor Industries Company Limited." The study's company's
working capital has not been managed properly or efficiently, according to the results.
In his analysis of "Working Capital Management Efficiency of Firms from

Telecommunication Equipment Industry," Ganesan made an effort. Correlation,
regression, and ANOVA analysis have all been used by the researcher to analyse the
effectiveness of working capital management. For the purpose of the study, information
from a sample of 349 companies in the telecommunication equipment business was
gathered from 2001 to 2007. Even while "day's working capital" is adversely correlated
with profitability, the study indicated that this relationship is not particularly important
for businesses in the telecommunication equipment sector.
K. Madhavi (2014) - Working capital management's importance in a company's

profitability and liquidity power is defined by K. Madhavi. The researcher obtains
comparative study of two paper mills in Andhra Pradesh for the 2002–2011 fiscal year in
order to examine and evaluate their current financial situation, solvency, liquidity,
efficiency, and profitability. After the study's conclusion, the management focused on
encouraging efficient use of cash balances and a potential liquidity position, the quick
ratio.
Menon studied "Working Capital Management" at "Kirloskar Pneumatics Co. Limited,

Hadapsar" from 2001-2002 to 2005-2006.
The findings indicate that the company did not maintain the various aspects of working
capital at an optimum level, and the working capital turnover ratio indicates a consistent
downward trend over the course of the study.
Gayathri J. (2015) provides an overview of working capital management in this paper.

This case study uses the textile business as a basis to analyse and understand
methodology, database, and various estimation processes' constraints. This review and
empirical study looks at potential directions for ongoing and future research on the topic.
There are numerous research studies that look at various aspects of the textile industry's
financial performance.
24
Chapter 2
Working Capital Management of Trading Houses in India was another subject that
Jayeshkumar Pravinchandra Vora studied. Study coverage ran from 2001–2002 through
2005–2006. The scope of the study includes all of India's manufacturing trading houses
and trading houses involved in commercial activity. Using all types of pertinent statistical
procedures and the most suitable parametric test, the acquired data were properly edited,
categorised, and analysed. The data were presented using simple classification; after they
had been examined using percentage, average dispersion, and ANOVA, the hypothesis
was evaluated at a 5% level of significance by using mean, standard deviation, co-
efficient, etc.
i. Companies held a relatively high degree of current assets and current claims.
ii. A small quantity of cash and its equivalent in current obligations were carried
by sample trading houses.
iii. Some trading houses have abnormally protracted collection periods, which
indicate very lenient and ineffective credit and collection practises. The likelihood
of bed debt losses increased.
iv. A lack of liquidity and greater cost of items sold were reflected in the sample
trading houses.
v. For a given quantity of current assets, the majority of trading houses are unable
to generate a sizable volume of sales.
vi. A larger operational expense ratio can be found in some trading firms.
The "The Working Capital Management of Firms from the Telecommunication

Equipment Industry" was a topic of study for Vedavinayagam Ganesan. Correlation and
regression analysis are used to investigate the relationship between working capital
management effectiveness and profitability. The effect of working capital management
on profitability is investigated using an ANOVA analysis. This study found evidence that
even though "days working capital" is negatively related to profitability, it is not
significantly affecting the profitability of firms in the telecommunication equipment
industry. It used a sample of 443 annual financial statements from 349
telecommunication equipment companies, covering the period 2001 to 2007.
Researcher K. Madhavi, Assistant Professor at the Maharani's Arts, Commerce and

Management College for Women in Bangalore, Karnataka, conducted a study on
"Working Capital Management of Paper Mills" from 2001–2002 to 2010–11. Standard
statistical methods like percentages and averages have been applied to the study of data.
The investigation revealed that the management of APPML must take the required
actions to invest its idle cash and bank balances in lucrative projects or to pay back short-
term commitments (current ratio). If it has fast-moving inventory and is more acceptable
25
Chapter 2
in SSPBL with APPML, the low quick ratio might also have liquidity position. In
comparison to SSPBL, the cash ratio in APPML is unsatisfactory, and the management
must take action to ensure effective use of cash and bank balance.
The years 2002-2003 to 2006-2007 were covered by Solanki Ashvinkumar H.'s study,
"Working Capital Management in Selected Small Scale Industries of Gujarat State." In
the aforementioned study, a sample of 6 (six) businesses, comprising the engineering,
plastics, chemical, textile, furniture, and miscellaneous industries, was taken. Cash
management, accounts receivable management, inventory management techniques, and
comparative performance study of a few small-scale enterprises in Gujarat state have
each been covered separately. The recommendations made by the aforementioned study
were as follows:
i. Textile industries should increase their use of gross fixed assets to increase cost
effectiveness in the production unit.
ii. The engineering and plastics sectors need to improve their ability to use net
fixed assets.
iii. Chemical industries need to determine why present asset utilisation has
declined during the research period.
iv. Each business should work to keep the amount of liquidity steady. They should
therefore update their liquidity policy.
v. The furniture industry should lower its debt level because it has a very high debt
level.
vi. Diverse industries should expand their debt so that unit owners can gain.
vii. The textile, chemical, and plastics industries benefit from a lengthy credit
period. However, it might hurt them later. Thus, the length of the credit period
should be shortened.
The study by Suraj Narain Mathur, "Working Capital Management of Cement Industry in
India: A Comparative Analysis of Selected Units," included firms like ACC, Gujarat
Ambuja, Shree Cement, Indian Cement, and Mangalam Cement. Utilizing a variety of
tools and techniques (such as ratio, mean, chi-square, trend indices, etc.) on data spanning
the years 2003–2004 to 2007–2008, it was discovered that the cement industry's cash
management is seriously lacking, and that it has failed to maximise production and sales
while minimising risk and cost.
A sample of chosen units from the years 2003–2004 to 2008–2009 served as the basis for
Prof. J. R. Patel's evaluation of "Working Capital Management in Cement Industries in
India." The aforementioned study used 19 units as a sample. The key findings were as
follows: 1. Eight organisations were discovered to be paying greater attention to the only
26
Chapter 2
liquidity aspects of working capital management and making more cautious decisions,
which is causing a loss in the company's profitability.
i. It was discovered throughout the course of the investigations that 8 companies

were paying more attention to the only liquidity aspects of working capital
management and making more conservative decisions, which was causing a
loss in the company's profitability.
ii. Many businesses lack the right computer software to handle inventories, which
results in a lack of coordination.
iii. In comparison to other private enterprises, Ultratech Cement Ltd. has had very
low performance.
iv. Madras Cement Ltd. has demonstrated strong success in a short amount of time
because it has been able to continue its aggressive working capital management
approach.
Three cement companies—ACC Ltd., India Cement Ltd., and Ultratech
Cement Ltd.—have extremely large sums of money stuck in their inventories
and receivables.
Pravin H. Popat conducted a study named "A Study on Working Capital Management
and its Impact on Profitability of Selected Fertilizer Units of Gujarat State" that spanned
the years 2003–2004 to 2007–2008 utilising methods and tools including ratio analysis
and t-test, among others. The main findings are listed below;
i. The GPSC and GNFC units' current ratios are UPS and downtrending.
ii. Both companies' quick ratios were the same for the duration of the trial.
iii. The ITOR and DTOR of GSFC and GNFC, which measure the current
assets to total assets ratio, do not significantly differ from one another.
The working capital to sales ratio Up and Down to GSFC and GNFC
displays a mixed trend during the study period, and v. The creditor turnover
ratio in GSFC and GNFC also showed a mixed trend.
Professors Shingare Vishal Sundar Rama and Asst. Prof. Acharekar Sachin Vilas Vijaya
undertook "A Study on Working Capital Management of Cement Industries in India."
The study spans a five-year period between the years 2003–2004 and 2008–2009. This
study is based on secondary data that was also subjected to statistical analyses using
methods like ratio analysis, correlation, and ANOVA. The main conclusions were:
i. The cement industry's average current ratio and quick ratio are only slightly higher
than average at 1.28 and 0.54, respectively. In terms of current and quick ratio,
27
Chapter 2
Birla Corporation Ltd, Heidelberg Cement India Ltd, and J.K. Lakshmi Ltd are at
the top of the list of the firms in terms of liquidity.
ii. In comparison to other private businesses, the public sector company Andhra
Cement Ltd. has demonstrated extremely poor working capital management. Its
extremely low current ratio and insignificant liquidity indicate that inventories are
being accumulated at a rapid rate. Andhra Cements Ltd. manages its liquidity
position very poorly.
In his study, "Working Capital Management in Kansai Nerolac Paints Ltd.," Sagarkumar
Ashoklal Bora examined the company's working capital condition and working capital
management practises. As well, working capital position analysis from the 2008–2009
through 2012–2013 annual reports using the ratio analysis tool. Although the company's
current and quick ratio is good, the researcher discovered that it may be improved. Every
year, the ratio of inventory turnover has decreased. The liquidity condition of the
business is excellent. The business is growing overall under superb management.
Mohd Ahmad Ansari used a variety of methodologies, including ratio analysis, trend
analysis, operating cycle analysis, and more, in his research on the topic of "Analysis of
Working Capital Management of Shriram Pistons & Rings Ltd." during the years 2009–
2010 to 2011–2012. The main discoveries were that:
i. Operating cycle, current ratio, inventory turnover ratio, and debtor turnover ratio
all show an upward tendency.
ii. The 2011–12 year's quick ratio (1.57:1) and current ratio (2.43:1) are a little bit
higher than the optimal values.
iii. The optimal working capital requirement on an average basis.
In his review of "Financing Pattern of Working Capital in Indian Industries," Radhe S.

Pradhan (The Management Accountant, April 1986). He focused on seven industries:
breweries, sugar, cement, pulp and paper, food items, electrical equipment and cables, tea
plantations, coal and mining paper, pulp and hardboard, and pulp and hardboard. Loans,
advances, and various creditors have been noted as the main sources of short-term
funding in Indian companies, according to Radhe S. Pradhan. Leslie R. Howard is correct
in pointing out that a better understanding of the significance of working capital and its
adequate provision can not only result in a material reduction in the efficient use of
capital but can also help advance the ultimate goal of a business, which is to maximise
financial returns on the minimum amount of capital that must be employed.
28
Chapter 2
Bhatt V. V. (1972) widely touches upon a method of appraising working capital finance
applications of large manufacturing concerns. It states that similar methods need to be
devised for other sectors such as agriculture, trade etc. The author is of the view that
banks while providing short-term finance, concentrate their attention on adequacy of
security and repayment capacity. On being satisfied with these two criteria they do not
generally carry out any detail appraisal of the working of the concerns.
Smith Keith V. (1973) believes that Research which concerns shorter range or working
capital decision making would appear to have been less productive. The inability of
financial managers to plan and control properly the current assets and current liabilities
of their respective firms has been the probable cause of business failure in recent years.
Current assets collectively represent the single largest investment for many firms, while
current liabilities account for a major part of total financing in many instances. This
paper covers eight distinct approaches to working capital management. The first three -
aggregate guidelines, constraints set and cost balancing are partial models; two other
approaches - probability models and portfolio theory, emphasize future uncertainty and
interdepencies while the remaining three approaches - mathematical programming,
multiple goals and financial simulation have a wider systematic focus.
Chakraborthy S. K. (1974) tries to distinguish cash working capital v/s balance sheet
working capital. The analysis is based on the following dimensions: a) Working capital
in common parlance b) Operating cycle concept b) Computation of operating cycle
period in all the four cases. The purpose of the analysis is to demonstrate operating
cycle concepts based on published annual reports of the firms.
Natarajan Sundar (1980) is of the opinion that working capital is important at both, the
national and the corporate level. Control on working capital at the national level is
exercised primarily through credit controls. The Tandon Study Group has provided a
comprehensive operational framework for the same. In operational terms, efficient
working capital consists of determining the optimum level of working capital, financing
it imaginatively and exercising control over it. He concludes that at the corporate level
investment in working capital is as important as investment in fixed assets. And
especially for a company which is not growing, survival will be possible only so long as
it can match increase in operational cost with improved operational efficiency, one of the
most important aspects of which is management of working capital.
Kaveri V. S. (1985) has based his writing on the RBI‟s studies on finances of large
public limited companies. This review of working capital finance refers to two points of
time i.e., the accounting years ending in 1979 and 1983 and is based on the data as given
29
Chapter 2
in the Reserve Bank of India on studies of these companies for the respective dates. He
observes that the Indian industry has by and large failed to change its pattern of working
capital financing in keeping with the norms suggested by the Chore Committee. While
the position of working capital management showed some investment between 1975-79
and 1979-83, industries have not succeeded in widening the base of long-term funds to
the desired extent. The author concludes with the observation that despite giving
sufficient time to the industries to readjust the capital structure so as to shift from the
first method to the second method, progress achieved towards this end fell short of what
was desired under the second method of working capital finance.
Bhattacharyya Hrishikes (1987) tries to develop a comprehensive theory and tool of

working capital management from the system‟s point of view. According to this study,
capital is often used to refer to capital goods consisting of a great variety of things,
namely, machines of various kinds, plants, houses, tools, raw materials and goods-in-
process. A finance manager of a firm looks for these things on the assets side of the
balance sheet. For capital he turns his attention to the other side of the balance sheet and
never commits a mistake. His purpose is to balance the two sides in such a way that net
worth of the firm increases without increasing the riskiness of the business. This
balancing is financing, i.e., financing the assets of the firm by generating streams of
liabilities continuously to match with the dynamism of the former. The study is an
improvement of the concept of Park and Gladson who were not able to capture the entire
techno financial operating structure of a firm.
Rao K.V. and Rao Chinta (1991) observe the strong and weak points of conventional
techniques of working capital analysis. The result has been obviously mixed while some
of the conventional techniques which could comprehend the working capital behavior
well; others failed in doing the job properly. The authors have attempted to evaluate the
efficiency of working capital management with the help of conventional techniques i.e.,
ratio analysis. The article concludes prodding future scholars to search for a
comprehensive and decisive yardstick in evaluating the working capital efficiency.
Hamlin Alan P. and Heath field David F. (1991) opine that working capital is necessary
input to the production process and yet is ignored in most economic models of
production. The implications of modeling the time dimension of production, and hence,
the working capital requirements of firms are explored, with the particular stress placed
on the competitive advantage gained by firms that retained flexibility in the time
structure of their production. In this article they have attempted to explore only this most
30
Chapter 2
basic role of time in the production process and so focus is on the implications of
explicitly recognizing the need for working capital.
Zaman M. (1991) studies the working capital management practices of Public Sector
Jute Enterprises in Bangladesh which have been found to be seriously affected. This has
been attributed to several factors like low demand for jute goods and serious competition
in the international market, insufficient inventory management policy, poor collection
policy and inefficient cash policy. The author has formulated a long term flexible and
operational working capital management model. In conclusion he has suggested the
model which would certainly help improve the working capital management practices of
the jute industry in particular and other public enterprises as well in Bangladesh.
Fazzari Steven M. and Petersen Bruce C. (1993) throws light on new tests for finance
constraints on investment by emphasising the often neglected role of working capital as
both a use and a source of funds. The authors believe that working capital is also a
source of liquidity that should be used to smooth fixed investment relative to cash-flow
shocks if firms face finance constraints. They have found that working capital
investment is “excessively sensitive” to cash flow fluctuations. Besides, when working
capital investment is included in a fixed-investment regression as a use or source of
funds, it has a negative coefficient. They conclude that controlling for the smoothing role
of working capital results in a much larger estimate of the long-run impact of finance
constraints than reported in other studies.
Hossain Saiyed Zabid and Akon Md. Habibur Rahman (1997) emphasise the basic
objective of working capital management i.e., to arrange the needed working capital
funds at the right time, at right cost and from right source with a view to achieving a
trade-off between liquidity and profitability. The analysis reveals that BTMC had
followed an aggressive working capital financing policy taking the risk of liquidity.
There was uninterrupted increasing trend in negative net working capital throughout the
period of the study which suggested that BTMC had exploited the entire short-term
sources available to it without considering the actual needs.
Ahmed Habib (1998) points out that when the interest rate is included; money loses its
predictive power on output. The study explicates this finding by using a rational
expectations model where production decisions of firm required debt finance working
capital. Working capital is an important factor and its cost, the rate of interest, affects the
supply of goods by firms. Monetary policy shocks, thus, affect the interest rate and the
supply side, and as a result price and output produced by firms. The model indicates that
this can cause the predictive power of monetary shocks on output to diminish when the
31
Chapter 2
interest rate is used in empirical analysis. The model also alludes to the effects of
monetary policy on the price level through the supply side (cost push) factors.
Prof. Mallick Amit and Sur Debasish (1998) attempt to make an empirical study of AFT
Industries Ltd, a tea producing company in Assam for assessing the impact of working
capital on its profitability during the period 1986-87 to 1995- 96. The author has explored
the co-relation between ROI and several ratios relating to working capital management.
On the whole, this study of the co relation between the selected ratios in the area of
working capital management and profitability of the company revealed both negative
and positive effects. Moreover, the WCL of the company recorded a fluctuating trend
during the period under study.
Hossain, Syed Zabid (1999) throws light on the various aspects of working capital
position. He has evaluated working capital and its components through the use of ratio
analysis. For each aspect of analysis certain ratios are computed and then results are
compared with the standard ratio or industry average.
Singaravel, P. (1999) focuses on the interdependency among working capital, liquidity

and profitability, of which sufficiency of liquidity comes in the first preference followed
by sufficiency of working capital and profitability. The article is an in-depth analysis of
liquidity and its interrelationship with working capital and profitability. As the working
capital, liquidity and profitability are in triangular position, none is dispensable at the
satisfaction of the other. Excess of stock-in-trade over bank over-draft and excess of
liquid assets over current liabilities other than bank over-draft generate working capital
for the business. Alternatively working capital requirements are made for long-term
funds which affect the profitability.
Garg Pawan Kumar (1999) focuses on the study of working capital trend and liquidity
analysis in the selected public sector enterprises of Haryana. The study suggests
forecasting of working capital requirement confined mainly to various components of
working capital. After considering the facts the author realized the need for proper
assessment and forecasting of working capital in the public sector undertaking. For this
purpose, he has suggested the analysis of production schedule, sales trend, labour cost
etc., should be taken into consideration. He further suggested the need for better
management of components of working capital.
32
Chapter 2
Batra G. S. and Sharma A. K. (1999) analyze the working capital position of Goetze (I)
Ltd. with the help of various ratios. They are of the view that the working capital
position in the company is quite satisfactory although they have suggested a few
measures for further improvement in management of working capital, like necessity of
greater attention in the inventory control; active sales department, speedy dispatch of
orders and reduction of dependency on trade creditors.
Batra Gurdeep Singh (1999) gives an overview of working capital and its determinants.
According to the author working capital management involves deciding upon the amount
and composition of current assets and how to finance them. He emphasizes on the
hedging approach to finance current assets. He also adds that a management can use ratio
analysis of working capital as a means of checking upon the efficiency with which
working capital is being used in the enterprises.
Bansal S. P. (1999) observes that due to the conservative policy of the corporation i )
Short-term creditors position regarding their claim is threatened due to lack of funds, ii )
The company was not following uniform policy regarding the collection of debtors, and
iii ) Inefficiency on the part of the management causes over investment in inventories.
As a result a serious situation arose due to shortage of working capital. The author warns
the corporation that if it did not plan its cash needs properly, it would be lead to
bankruptcy.
Bansal S. P. (1999) opines that working capital management refers to the management of
current assets and current liabilities for maintaining the optimum levels of various
components and increasing the profitability of an enterprise. The author has insisted on
application of various techniques for management of working capital and its three main
components cash, receivables and inventories.
Pathania Kulwant Singh (1999) advocates for the bank to concentrate to maximize
profitability and make optimum utilization of cash resources available, while at the same
time taking care to economize cash holding without impairing the overall liquidity
requirements of the bank. For strengthening the financial base of the bank, permanent
working capital should be financed by equity capital or other long-term sources, whereas
temporary working capital should generally be financed by short-term sources. The
author is satisfied with the working capital management of the bank, but sees scope for
further improvement.
Chalam G. V. and Manohar Babu B. V. (1999) observe that liquidity performance is

very low as compared to the ideal norms. It is suggested that for managing working
33
Chapter 2
capital effectively the operating and other required budgets should be prepared by the
respective levels of the management on short-term as well as long-term basis. It is
further suggested that these are the people concerned who can really influence the
process of production activity to such an extent that there should be optimum utilization
of the investment in working capital.
Rao Govinda D. (1999) believes that changes in quantum of working capital are
ascertained and analyzed. The author has attempted to find out the causes of the changes
in the size of working capital in the sample companies during the period under study. He
found several causes of changes in working capital, mainly (a) sources of funds and (b)
applications of funds. In the end, the changes in working capital are analyzed with the
help of the changes in working capital and funds flow statement.
Garg Pawan Kumar (1999) suggests that working capital should be financed with both
the sources – long-term as well as short-term sources of funds. He further suggests that
permanent working capital should be obtained with the help of long-term sources of
finance while variable/ fluctuating working capital should be collected through short-
term sources of finance. Efficient utilization of working capital enhances operating
efficiency as well as income of the units.
Singh O. N. (1999) discusses the credit needs of farmers / agriculture sector and then
emphasizes on the need for having a system of working capital finance in agriculture on
the lines of the industry and commerce finance, of course with some changes. He
advocates a system which is equally equipped and appropriate to meet the needs of both
the farmers as well as the bankers. His basic purpose is to strengthen the capital base of
the farmers.
Rao Govinda D. and Rao P. M. (1999) believes that management of working capital is a
continuous process requiring proper monitoring and studying of the relationship of all
variables with constant, and drawing inferences. This provides proper direction to the
managers.
Jain P. K. and Yadav Surendra S. (2001) study the corporate practices related to
management of working capital in India, Singapore and Thailand. In this paper the
authors have tried to understand the working capital management and current assets and
current liabilities, and their inter-relationship. Further the authors have shown an
aggregative analysis of current assets and current liabilities in terms of major liquidity
ratios. It also states working capital position in terms of these ratios pertaining to various
34
Chapter 2
industries. From the paper one can infer that the available data in respect of the sample
companies from the three countries confirm the wide inter-industry variations in liquidity
ratios. Towards the end, the authors suggest that serious consideration needs to be given
by the respective governments as well as industry groups in these three countries in order
to take corrective measures to take care of and rectify the areas of concern.
Deloof Marc. (2003) presents a picture of how working capital management affects the
profitability of Belgium firms. The writer has made use of empirical analysis for the
sample firms. It was observed that most of the firms have a large amount of cash
invested in working capital. It can, therefore, be deduced that the way in which working
capital is managed will have a significant impact on the profitability of the firms.
Howorth Carole and Westhead Paul (2003) have tried to find out the working capital
management routines of a large random sample of small companies in the UK.
Considerable variability in the take-up of eleven working capital management routines
was detected. Principal components analysis and cluster analysis confirmed the
identification of four distinct “types” of companies with regard to the patents of working
capital management. While the first three „types‟ of companies focused upon cash
management, stock or debtors routines respectively, the fourth „type‟ was less likely to
take-up any working capital management routines. The objective of the study is to
encourage additional research rather than to provide an exhaustive overview of all the
factors associated with the take-up of working capital management routines by small
companies. The results suggest that small companies focus only on areas of working
capital management where they expect to improve marginal returns.
Sarawat B. P. and Agrawal R. S. (2004) have tried to evaluate working capital position
of Nepal cement industry.
1. The study has the following major objectives:

2. To find the trend and tendency of working capital
3. To analyse and evaluate working capital management
4. To suggest an effective way for management of working capital. The study
attributes the losses or low level of profits of the public enterprises in Nepal to
ineffective and inefficient utilization of working capital. The failure of an
enterprise is due to shortage of working capital.
Filbeck Greg and Krueger Thomas M. (2005) base their study on the ratings of working
capital management published in CFO magazines. The findings of the study provides
insight into working capital performance and working capital management, which is
35
Chapter 2
explained by macro economic factors, interest rates, competition, etc., and their impact
on working capital management. The article further studies the impact of working capital
management on stock prices.
Meszek Wieslaw and Polewski Marcin (2006) examine the profiles of selected
construction companies from the viewpoint of working capital formation and their
management strategies applied to working capital. The analysis is based on the financial
ratios. The authors conclude with the observation that complex working capital
management requires controlling methodology to be developed. A specific character of
the construction industry, including operational factors and market requirements make
working capital management a task exceeding the financial sphere, as it embraces the
issues of organization of investment processes, the organization of production processes
and logistics.
Chowdhury Anup and Amin Md. Muntasir (2007) examine the working capital
management practice in pharmaceutical companies listed in Dhaka Stock Exchange.
Among all the problems of financial management, the problems of working capital
management have been recognized as the most crucial one. It is because of the fact that
working capital always helps a business concern to gain vitality and life strength. The
objective of the study is to critically evaluate the working capital management practices
in the selected firms of the pharmaceutical industry. To achieve this goal, the study also
examines the policies and practices of cash management and evaluates the principles,
procedures and techniques of inventory management, receivables management and
payable management. From the analysis, the authors conclude that the pharmaceutical
firms operated in Bangladesh efficiently deal with their liquidity preferences and
investment criteria. And this is due to the competitive nature of this industry.
Jain P. K. and Yadav Surendra S. (2007) study the different facets of working capital
management. The issues addressed include relationship between CAs and CLs, the
financing of working capital, and ways of dealing with excess or shortage of working
capital. The study is based on an analysis of a thirteen year period data from 1991 to
2003 covering 137 public sector enterprises. In a nutshell, it is reasonable to contend that
the sample PSEs (Public Sector Enterprises) are faced with long duration of net working
capital cycle (time necessary to complete the following three events:
1. Conversion of cash into inventory

2. Conversion of inventory into debtors and
36
Chapter 2
3. Conversion of debtors into cash less credit available from creditors)

necessitating substantial working capital to be carried by them, eventually
affecting their profitability in adverse manner.
Thappa Sankar (2007) focuses on the importance of proper working capital management
of Sun Pharmaceutical Company. The paper throws light on the concepts of working
capital, working capital policy, components of working capital and factors affecting
working capital in the Sun Pharma Industries Ltd during the last five years, and identifies
certain factors which are responsible for the improvement of working capital of the
company. The article concludes with a warning to the Company that if satisfactory level
of working capital is not maintained, the company would become bankrupt.
Ganesan Vedavinayagam (2007) studies the impact of working capital management on

profitability through ANOVA test where the financial statements of 349 telecom units or
enterprises are analyzed. The relationship between working capital management
efficiency and profitability and the impact of working capital management on the same
has been tested. At the end of the study the author has minutely observed that the
working capital management efficiency in telecommunication industry is poor. And he
suggests that the telecommunication industry should improve working capital
management efficiency.
Appuhami Ranjith B. A. (2008) investigates the impact of firms‟ capital expenditure on

their working capital management. The data used in this article was collected from listed
companies in the Thailand Stock Exchange. In this work the writer has used Shulman
and Cox‟s (1985) net liquidity balance and working capital requirement as a proxy for
working capital measurement and developed multiple regression models. At the end it is
derived that the firms‟ capital expenditure has a significant impact on working capital
management, and that the firms operating cash flow which was recognized as a control
variable, has a significant relationship with working capital management.
Samiloglu F. and Demirgunes K. (2008) intend to analyse the effect of working capital
management on firm‟s profitability. To consider statistically significant relationship
between the firm‟s profitability and the components of cash conversion cycle at length, a
sample consisting of Istanbul Stock Exchange (ISE) listed manufacturing firms for the
period from 1989 to 2007 has been analysed under a multiple regression model.
Empirical findings of the study show that accounts receivable period, inventory period
and leverage affect firm‟s profitability negatively, while growth (in sales) affects firm‟s
profitability positively.
37
Chapter 2
Virani Varsha (2008) has conducted a comparative analysis of CADILA healthcare with
the following objectives:
1. To evaluate the financial performance

2. To examine the profitability trend
3. To ascertain the assets utilization pattern and evaluate liquidity position of
the company.
The author has used two sophisticated analytical tools for the analysis i.e. ratio analysis
and correlation analysis. The correlation between various ratios is depicted in the study.
It is observed that in most of the cases, correlation coefficient is near to 1. Hence, it can
be said that there is a high degree of positive and negative correlation between most of
the ratios.
Ramudu Janaki P. and Rao Durga S. (2008) attempt to analyze both concept and
research based studies. Working capital may be regarded as the lifeblood of any business
unit. Its effective management can do much more to the success of the business while its
ineffective management will undoubtedly lead to failure of the business. It is in this
context that the management of working capital assumes paramount importance. In the
present scenario of competition, the business does not have any other option than
reducing the cost of its operations in order to survive and continue to be financially
healthy. It is in this connection effective management of working capital forms an
absolute part of cost reduction. As it is quite vivid and evident in many researches in any
manufacturing unit, barring knowledge industry, the proportion of raw material in total
cost of the product will be the highest and hence, if the organization wants to minimize
the cost of production it has to tackle the cost of raw material first. So the authors have
tried to analyze both the concept and research based studies on working capital
management in a business unit.
Dinesh M. (2008) explicates the concepts of working capital, the different challenges
being faced by the business firms in managing working capital and the strategies to be
adopted for its prudent management. The author concludes with the view that most of the
businesses failed not for want of profit but for lack of cash. The fast growth in
production and sales may cause the business to utilize all of the financial resources
seeking growth and making assets such as inventories, accounts receivable and other
assets as more illiquid.
Narender Vunyale, Menon Shrijit and Shwetha V. (2008) examine the determinants of
working capital management in cement industry in India. In this article, net liquid
38
Chapter 2
balance and working capital requirements were used by the authors as measures of
investing working capital management of the industry. The factors like size, business
indicator, firm performance, growth of the firm, debt-equity ratio and operating cash
flow are taken into consideration. Overall, the paper concludes with the observation that
only size of firm affects both net liquid balance and working capital ratio in a company‟s
working capital management. The results suggest that there is a lack of consistent
evidence of the factors influencing working capital management in the cement industry.
Dr.Khatik S. K. and Jain Rashmi (2009) state that the management of working capital is
one of the most important and key resources of an organization for its day-to-day
operations. Working capital can be taken as funding resources for routine activities of
business. It is the most vital and important part of fund management and profitability for
business. The writer has analyzed the working capital position of MPSEB (Madhya
Pradesh State Electricity Board) by ratio analysis technique and it was found that the
position of current ratio, quick ratio, acid-test ratio, working capital ratio, inventory
turnover ratio are not up to the standard benchmark.
Sen Mehmet and Oruc Eda (2009) want to determine the relationship between efficiency
level of firms being traded in Istanbul Stock Exchange (ISE) in working capital
management and their return on total assets. In this article they have made an attempt to
explain the relationship between different indicators relating to efficiency in working
capital management and their return on total assets through two models. The study
concludes with the observation that according to the results in terms of both, all the firms
involved in the study and sectors, there is a significant negative relationship between
cash conversion cycle, net working capital level, current ratio, accounts receivable
period, inventory period and returns on total assets.
Ramachandran Azhagaiah and Janakiraman Muralidharan (2009) have attempted to

analyze the relationship between working capital management efficiency (WCME) and
earnings before interest and taxes (EBIT) of the paper industry in India during 1997-98
to 2005-06. To measure the working capital management efficiency three index values
i.e., performance index, utilization index and efficiency index, and EBIT have been used
for all the firms over the period of the study. At the end of the study it was noted that
Indian paper firms performed remarkably well during the period. Industry overall
efficiency index was >1 in 3 out of 9 years for the study period. Though some of the
sample units had successfully improved efficiency during the three years, the existence
39
Chapter 2
of a very high degree of inconsistency in this matter clearly points out the need for
adopting sound WCM (working capital management) policy in these firms.
Baig Viqar Ali (2009) aims at reporting comparative findings of a survey of working
capital management practices of selected agribusiness firms from diary co-operatives,
private and MNC diary firms as a part of the research thesis completed in July 2008.
Besides, an attempt has been made to know the effect of the ownership, government
regulations, managerial empowerment and cultural factor on the working capital decision
making.
Uyar Ali (2009) examines the relationship of cash conversion cycle with firm size and
profitability of the corporations listed in the Istanbul Stock Exchange (ISE) for the year
2007. The following are the objectives of the study:
1. To set industry benchmarks for cash conversion cycle (CCC) of

merchandising and manufacturing companies,
2. To examine the relationship between the length of the CCC and the size of
the firms, and
3. To study the length of the CCC and profitability.
4. It was observed that the retail/wholesale industry showed shorter CCC than
the manufacturing industries.
Another important finding of the study was that the textile industry had the longest CCC,
which explains the liquidity problems in the industry. Moreover, the findings indicated a
significant negative correlation between the length of CCC and the firm size, in terms of
both net sales and total assets. Lastly, the significant negative correlation between the
length of CCC and profitability is another important finding of the study.
Singh Swaran and Dr Bansal S. K. (2010) has carried out a study of the structure of
working capital, the management of inventory, accounts receivable, accounts payable
and cash. The authors have used the data from the published annual reports of IFFCO
and KRIBHCO starting from the year 1999-00 to 2006-07. The main objective of the
present study is to examine and evaluate the working capital management in IFFCO and
KRIBHCO. The analysis has been done with the help of various ratios to derive
conclusions. It may be concluded that as far as management of working capital is
concerned, IFFCO was performing better than KRIBHCO.
40
Chapter 2
Arunkumar O. N. and Jayakumar S. (2010) explain how working capital is considered to

be the lifeblood and controlling nerve centre of the business. Profitability and solvency
are two vital aspects of working capital management. The survival and growth of the
company depends upon the ability to meet profitability and solvency. Here the authors
have concentrated on the analysis of liquidity and solvency position of the major Public
Sector Electrical Industries in Kerala such as Kerala Electrical and Allied Engineering
Company Ltd (KEL) and Transformers and Electrical Kerala Ltd (TELK) for the
financial years 1997-98 to 2007-08 and 1997-98 to 2005-06 respectively. In conclusion
the authors have made a few important observations with regard to the companies. Both
the companies show a trend of very low level of solvency position. The liquidity position
of the companies is below the normal value. KEL has a lower level of net profit
compared to TELK for the stated period. In comparison with KEL, the sensitivity of
changes in the level of current assets is high in case of TELK.
Gill Amarjit, Biger Nahum and Mathur Neil (2010) examine the relationship between
working capital management and profitability. For the study, 88 American firms listed
on New York Stock Exchange for a period of three years from 2005 to 2007 were
selected as a sample. They found statistically significant relationship between the cash
conversion cycle and profitability, measured through gross operating profits. It also
showed that managers could create profits for their companies by handling correctly the
cash conversion cycle and by keeping accounts receivable at an optimal level. The study
concludes with the observation that profitability can be enhanced if firms manage their
working capital in a more efficient way.
Mohamad Nor Edi Azhar Binti and Saad Noriza Binti Mohd, (2010) attempt to bridge
the gap in the related literature by offering empirical evidence about working capital
management and its effects on the performance of Malaysian listed companies from the
perspective of market valuation and profitability. The objective of the study is to
examine the effects of working capital components. The authors have made an in depth
empirical research on the association between working capital management and the
firm‟s performance. On the basis of the findings, it can be concluded that working
capital components and performance in Malaysia disclose both positive and negative
association. The study reveals that out of the five components selected for the study,
CATAR shows positive significant relationships with Tobin Q, ROA and ROIC. On the
other hand, three components CCC, CACLR and CLTAR illustrate negative significant
relations with Tobin Q, ROA and ROIC. DR is negatively significant with ROA only but
significant with ROIC, while positively significant with Tobin Q.
41
Chapter 2
Rosenbluth Frances (2010) makes a close study of the role that networks can play in
boosting women's representation in the personal, professional and political arenas. It has
been found that women lag behind men in their access to professional networks. At the
end of the study the author concludes with the observation that gender equality will
remain out of reach until women and men have a statistically equal shot at being
productive, which at the top of the career ladder invariably includes the difficult-to-
quantify but real value of network power.
Rahman Mohammad M. (2011) focuses on the co-relation between working capital and
profitability. An effective working capital management has a positive impact on
profitability of firms. From the study it is seen that in the textile industry profitability
and working capital management position are found to be up to the mark.
Haq Ikram Ul, Sohail Muhammad, Zaman Khalid and Alam Zaheer, (2011) examine the
relationship between working capital management and profitability by using data of 14
companies in the Cement Industry in the Khyber Pakhtonkhuwa Province (KPK) (2004-
09). The main purpose of the study was to find out whether financial ratios affect the
performance of the firms in the special context of the cement industry in Pakistan. For
the purpose of analyzing the data, the techniques of co-relation, co-efficient and multiple
regression analysis were used. We can deduce from the result that there is a moderate
relationship between working capital management and the firm‟s profitability.
Dr Arbab Ahmed and Dr Matarneh Bashar (2011) are of the view that the registration
technique is a very useful statistical technique of working capital forecasting. In the
sphere of working capital management, it helps in making projection after establishing
the average relationship in the past between sales and working capital, and its various
components. The analysis can be done with the help of graphic portrayals or
mathematical formula.
Sunday Kehinde James (2011) focuses on effective working capital management within
small and medium scale enterprises (SMEs). Most of the SMEs have little regard for
their working capital position and they don‟t even have standard credit policy. They
have very weak financial position, and rely on credit facility to finance their operations.
This credit facility is available from accounts payable most of the time. In conclusion the
authors recommend that for SMEs to survive within the Nigeria economy they must
design a standard credit policy and ensure good financial report and control system.
Besides, they must give adequate cognizance to the management of working capital. All
this requires systematic planning for the management of working capital to ensure
continuity, growth and solvency.
42
Chapter 2
Ahmadi Mosa, Saie Iraj and Garajafary Maryam (2012) examine the relationship
between working capital management and profitability in 33 companies of food industry
group member at Tehran stock Exchange for the period from 2006 to 2011, and the
effects of various variables of working capital management including average accounts
collection cycle, inventory turnover, medium term debt payment and the cash conversion
cycle on operational net profit of the companies. The findings of the research proved that
managers can create a positive value for stock holders by decreasing collection cycle,
debt payment period, inventory turnover, and cash conversion cycle to the lowest
possible level.
Dr Kaddumi Thair A. and Dr Ramadan Imad Z. (2012) assess the effect of working
capital management on the profitability in a sample of 49 Jordanian Industrial
corporations listed at Amman Stock Exchange (2005 to 2009). And using two alternative
measures of profitability as proxy for the performance and five proxies for the working
capital management, estimation of 20 models panel data cross- sectional time series have
been tested employing two regression models- the fixed effects model and the ordinary
least model. The findings of the study were found to be significantly consistent with the
view of the traditional working capital theory.
Quayyaum Sayeda Tahmina (2012) tries to investigate if there is any relationship

between working capital management and profitability in manufacturing corporations.
For this study corporations enlisted with the Dhaka Stock Exchange were selected
covering the period between 2005 and 2009. The purpose of the study is to examine
whether there is statistically significant relationship between the profitability and
working capital management and also help to explain the necessity of firms optimizing
the level of working capital management efficiency and in that way management taking
productive actions to maximize their profitability. It is proved that except for food
industry all other selected industries have a significant level of relationship between
profitability indices and various working capital components. This paper also shows that
the significant level of relationship varies from industry to industry.
Singh D. P. (2012) presents the relationship between the working capital management
and profitability in the IT and Telecom industry in India. The purpose of the study is to
investigate the relation between components of working capital ratios and profitability.
To attain the above objective the author theories the relationship between different
components of working capital management and profitability. The study shows that the
telecom industry is operating below average so far as working capital management is
concerned. The profitability was 40% when compared with the all India all
43
Chapter 2
manufacturing average. In the IT and the Telecom industry, working capital turnover,
current ratio, sales to total asset ratio were positively related to profitability. However,
days inventory was negatively related to profitability.
Banos-Caballero Sonia, Garcia-Teruel Pedro J. and Martinez-Solano Pedro (2012)

present the relationship between working capital management and profitability for
Spanish small and medium size enterprises (SMEs) by controlling for unobservable
heterogeneity and possible endogeneity. For the purpose of this study, standard working
capital ratios were used to measure the effectiveness of working capital in the selected
firms. This paper offers new evidence on the relationship between working capital
management and profitability by controlling for unobservable heterogeneity and possible
endogeneity and, unlike previous studies, given the competing hypotheses of effect of an
increase in working capital on firm‟s profitability, it analyses a possible quadratic
relation between these variables. At the end it has been observed that most SMEs do not
care about their working capital position, most have only little regard for their working
capital position and most do not even have standard credit policy. Many do not care
about their financial position, they only run business, and they mostly focus on cash
receipt and what their bank account position is.
Ramadu Janaki P. and Parasuraman N. R. (2012) focus on the growth and sales
compared with the changes in profitability and in working capital of Indian
Pharmaceutical Industries. The study revealed that the growth rate in profits was
disproportional to the sales and working capital components like inventory and debtors.
The study ends with the view that there was no rationale or relationship between the
sales growth and other components like net working capital, inventory turnover and
debtors turnover. Further, it can be deduced that growth rate in sales need not reflect the
growth rate in profitability and inventory turnover, and debtors turnover also need not
exercise any impact on profitability of the firms.
Matarneh, Bashar (2012) is about small scale industries and its important role in the
Indian economy. This paper analyses the problem of working capital management of
Small Scale Industries (SSI) in Rajasthan for a period of five years. As we know the
small scale industries have to decide about the sources of funds which can be availed to
make investment in the current assets. From the study, it has been found that the working
capital management is to decide the pattern of financing of the current assets, which is
one of the biggest problems of working capital management. The problem of working
capital management of small scale industries is not new, it prevails all over India. The
SSI units have low capital base where investment on fixed assets is found to be less.
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Chapter 2
Without the help of government support and cooperation from financial institutions, it
was found to be very difficult to solve the problem of working capital management of
SSIs of Rajasthan in particular and of India in general.
Akino Olayinka Olufisayo (2012) carries out a detailed study of the determinants of
working capital requirements – both internal and external of 66 firms in Nigeria. The
study covers the period from 1997 to 2007. On the basis of the results it was found that
sales growth, firm‟s operating cycle, economic activity, size and permanent working
capital are the firms‟ specific characteristics that positively drive working capital policy.
Leverage, however, is inversely related to working capital requirements. The results
conclude that traditional valuation methods used to quantify the efficiency of corporate
working capital policy may be suspect as increased investments in operating working
capital may be necessitated by increase in business uncertainties.
Bagchi B. and Khamrul B. (2012) investigate the relationship between working capital
management and the companies‟ profitability, and identify the variables that most affect
profitability. It is also an empirical study where the authors have investigated the effect
of working capital management on the companies‟ profitability by using a sample of
Indian FMCG companies. The study concludes with the observation that both CCC and
debt used by the firm are negatively associated with the companies‟ profitability. This
result can be further strengthened if the companies manage their working capital in more
efficient ways which will ultimately increase their profitability.
Chandra Bihas, Chouhan Vineet and Goswami Shubham Chandra Bihas, (2012), analyse
the trends and profitability vis-à-vis working capital of some selected information
technology organizations in India. The author concludes with the observation that the
increased requirement of working capital in IT companies is significantly established. He
further observes that there exists a positive relationship between working capital and
profitability of all the selected companies, with the exception of Patni Computer
Systems. The positive direction of relationship indicates that increase in working capital
leads to increase in profitability.
Manjhi Rakesh Kumar and Kulkarni S. R. (2012) carry out a study of the working capital
structure and liquidity analysis of Gujarat Textiles Manufacturing Industry. The
following are the objectives of the study:
1. To analyze working capital structure of Gujarat Textiles Manufacturing

Industry
45
Chapter 2
2. To analyze the liquidity position of the Industry

3. To analyze the working capital turnover position of the Industry. It was
found that the variation between current assets turnover and working capital
turnover was quite high across the industry. The study concludes with the
observation that Arvind Ltd. and Shri Dinesh mills Ltd. achieved lower
sales over their working capital and current assets as compared to the other
companies. However, the sample companies had good current ratio, which
also implies their sound liquidity position.
Chandra H. and Selvaraj A. (2012) analyses the working capital management of selected
Steel Companies in India for the period from 2000-01 to 2009-10. To measure the
effective utilization of working capital, operating cycle and cash conversion cycle were
used. Besides, to measure the determinants of cash conversion cycle, the Kieschnick
model was used. The study concludes with the observation that the size of a company
plays a vital role in determining the efficiency of its working capital management. The
working capital ratios across the small, medium and large sized steel companies have
played a vital role in determining the working capital management of the selected Indian
steel companies.
Dr Panigrahi Ashok Kumar (2012) studies the relationship between working capital
management and profitability of ACC Cement Company, the leading cement
manufacturer of the country for assessing the impact of working capital management on
profitability during the period 1999-2000 to 2009-10. The study is based on secondary
data. The main objective of the study was to find whether the working capital
management affects the performance of the firm. It can be deduced that there is a
moderate relationship between working capital management and the firm‟s profitability.
Scholleova Hana (2012) highlights the impact of economic crisis in the economy at the
micro economic level. The crisis that began in 2007 as a financial crisis has naturally
grown into an economic one. The article is elaborated as one of the outputs of
researching project new theory of economy and organizations‟ management and their
adaptation processes registered at MSMT of the Czech Republic under registration
number MSM 6138439905. The paper concludes with the view that the companies that
survived during the recession have optimized the assets and increased the efficiency of
financing through active management.
46
Chapter 2
Bei Zhao and Wijewardana W. P. (2012) examine the working capital policy (WCP)
practices in Srilankan context. They utilize multiple regression analysis (MRA) to
empirically formulate the industries best practices limit and measure firm efficiency as
the detachment from that limit. The objective of the study was to pursue additional
research rather than to reveal all the factors associated with WCP in the Srilankan
context. The authors believe that the resource constraint may be a major barrier to
utilization of working capital MCM by firms. Firms may invest resources into managing
a particular area of working capital where they are performing badly because the returns
from controlling the problem area are perceived to be high. If the direction of working
capital management (WCM) is not understood, the investment of more resource into an
area leads to worse performance.
Nakamura Palombini Nathalle Vicente and Nakamura Wilson Toshiro (2012) focus on
the key factors of working capital management by exploring the internal variables of a
number of companies. 2976 Brazilian Public Companies data from 2001 to 2008 were
used for the study. And it was found that debt level, size in growth rate could affect the
working capital management of the companies. The study aimed at contributing to the
understanding of the short term financial decisions by investigating the key factors of
working capital management. At the end of the study, it was found that companies with a
high level of working capital were consistent with previous studies (CHIOU, CHENG
and WU, 2006; NAZIR and AFZA, 2008). These findings corroborate the Pecking Order
Theory and suggest that as companies increase their financial leverage, they tend to
assume a more restrictive policy in working capital management in order to prevent
capital consumption in accounts receivable and inventory and to avoid issuing new
bonds and shares.
Song Zhen, Liu Duan and Chen Shou (2012) study the two aspects - turnover capacity
and liquidity, and have analyzed the effects of working capital on engineering product
market completion performance in the manufacture industry. The study discovers that
enterprise working capital turnover ability has positive effect on product market
competition performance while enterprise working capital liquidity has a negative
relationship with market competition performance. But according to regression equation
to predict the competition effects of working capital, exists larger error because the
actual impact of working capital on competition performance may be non-linear so the
authors have used B P Neural Network Model to predict the competition performance
and the results show that the overall prediction effect is good.
47
Chapter 2
Ding Sai, Guariglia Alessandra and Knight John (2012) have used a panel of over
1,16,000 Chinese firms of different ownership types over the period 2000 to 2007 to
analyze the linkages between investment in fixed and working capital and financing
constraints. It was observed that those firms characterized by high working capital,
display high sensitivities of investment in working capital to cash flow and low
sensitivities of investment in fixed capital to cash flow. Further the authors constructed
and analyzed firm level FKS and WKS measures and it was found that despite severe
external financing constraints, those firms with low FKS and high WKS exhibited the
highest fixed investment rates. It is thereby concluded that an active management of
working capital may help firms to alleviate the effects of financing constraints on fixed
investment.
Ray Sarbapriya (2012) studies the relationship between liquidity and profitability in the
manufacturing industry. The writer has taken as a sample 311 manufacturing firms for a
period of 14 years, and studied the effect of different variables of working capital
management. In this study strong adverse relationship between measures of working
capital management and corporate profitability have been observed. In the end
insignificant negative relationship between firm size and its net operating profit ratio was
detected.
Joshi Lalitkumar and Ghosh Sudipta (2012) study the working capital performance of
Cipla Ltd during the period 2004-05 to 2008-09. Financial ratios have been applied in
measuring the working capital performance, and statistical as well as econometric
techniques have been used. It was observed that the selected ratios show satisfactory
performance, and significant negative relationship between liquidity and profitability is
found to exist.
Kushalappa S.and Kunder Sharmila (2012) closely study the relationship between
working capital management policies and profitability of the thirteen listed
manufacturing firms in Ghana. At the end of the study, a significantly negative
relationship between profitability and accounts receivable days is found to exist.
Profitability is significantly positively influenced by the firm‟s cash conversion cycle
(CCC), current assets ratio and current asset turnover. It is also suggested that managers
can create value for the shareholders by creating incentives to reduce their accounts
receivable to 30 days.
Samson Adediran A, Mary Josiah, Yemisi Bosun-Fakunle and Erekpitan Imuzeze O

(2012) hope to empirically investigate the impact of working capital management on the
profitability of a sample of 30 SME‟s of Nigeria during 2009. In conclusion the writer
48
Chapter 2
points out that, managers can create value by reducing their firm‟s number of day‟s
accounts receivable and inventories. At the same time the firm‟s profitability could also
be improved by reducing the cash conversion cycle.
Turan M. S., Bamal Sucheta, Vashist Babita and Turan Nidhi (2013) attempt to examine
the relationship between working capital management and profitability by making an
inter sector comparison of two manufacturing industries i.e. Chemical industries and
Pharmaceutical industries. 50 companies from each sector based on market capitalization
and listed on BSE and 500 indices were selected for the research for the period from
2002 to 2011. At the end of the analysis it was concluded that in spite of similar nature
of both the industries in the manufacturing sector, working capital management variables
affect profitability indices more strongly in the chemical industry than in the
pharmaceutical industry. It was also observed that both the industries have a significant
relationship between profitability and working capital management variables. Besides,
working capital management variables affect more strongly the profitability indices of
chemical industry than those of pharmaceutical industry.
Kaur Harsh V. and Singh Sukhdev (2013) analyse empirically BSE 200 manufacturing
companies spread over 19 industries for the period 2000 to 2010. The study explores
scope to increase the efficiency and profitability of 145 companies by improving the
parameters of analysis. The study tests the relationship between the working capital
score and profitability measured by income to current assets and income to average total
assets. This article concentrates on cash conversion efficiency and planning the operating
cycle days. At the end, the study emphasizes that efficient management of working
capital significantly affects profitability.
Singh Moirangthem B. and Singh Tejmani N. (2013) emphasize on the efficient

management of working capital. According to them it means proper management of
various components of working capital due to which adequate amount of working capital
and liquidity is maintained in the larger interest of successful running of an enterprise.
At the end he offers the following suggestions:
1. The industry should try to maintain proper level of net working capital by
trying to control the growth rate of current assets as compared to current
liabilities to some extent.
2. The industry should also try to maintain balance between liquidity and
profitability position by improving current ratio and quick ratio.
49
Chapter 2
Akoto Richard K., Vitor Dadson A. and Angmor Peter L. (2013) closely study the
relationship between working capital management policies and profitability of the
thirteen listed manufacturing firms in Ghana. At the end of the study, a significantly
negative relationship between profitability and accounts receivable days is found to
exist. Profitability is significantly positively influenced by the firm‟s cash conversion
cycle (CCC), current assets ratio and current asset turnover. It is also suggested that
managers can create value for the shareholders by creating incentives to reduce their
accounts receivable to 30 days.
Joseph Jisha (2014) closely examines the study of working capital management in Ashok
Leyland and points out that the liquidity and profitability position of the company is not
satisfactory, and needed to be strengthened in order to be able to meet its obligations in
time.
Madhavi K. (2014) makes an empirical study of the co-relation between liquidity

position and profitability of the paper mills in Andhra Pradesh. It has been observed that
inefficient working capital management makes a negative impact on profitability and
liquidity position of the paper mills.
Gurumurthy N. and Reddy Jayachandra K. (2014) have conducted a study on the

working capital management of four pharmaceutical companies APSPDCL, APEPDCL,
APNPDCL and APCPDCL and have come to the conclusion that the existing system of
working capital management was not up to the mark and needed to be improved.
50

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Chapter 2

Working capital management, or more specifically the management of current assets

2. Objectives of working capital management

The following are the primary goals of working capital management:

3. Principle of working capital management

Principle of Cost of Capital:

Principle of Maturity of Payment:

Principle of Risk Variation:

management should strive to maintain a level of working capital that maximises a

Principle of Equity Position:

4. Importance of working capital management

Because it is essential to keeping a company operation operating, working capital

Underutilization of capacity is fixed by management of present assets. Therefore,

5.1. Aspects of Cash Management:

In instances of financial shortfalls, a judiciously crafted cash budget becomes

5.2. Managing financial flows:

Firstly, implementing a decentralized collection system is crucial to expedite cash

5.3. Determining the optimum cash balance:

Consequently, the economy can be adversely affected by either an insufficient or surplus

5.4. Investing idle cash:

6. MANAGEMENT OF DEBTORS / RECEIVABLES

6.1. Factors Affecting the Size of Debtors:

These demands, however, pose inherent contradictions. Extremes in either direction—

1. Ensuring a consistent supply of raw materials to sustain uninterrupted

7.1. Techniques of Inventory Management:

Two different approaches are employed for inventory management;

What quantity should be ordered?

Dr. Monika Maheshwari, assistant professor at the Shri Vaishnav Institute of

Bansal (2001)-researcher analysis the working capital management in Himachal Pradesh

Refuse, Emaynard (1996)-the study suggested that obtaining creditors to increase

i. Industries did not effectively plan their working capital requirements.

Another research by Ashim K. Mukherjee on the "Management of Working Capital in

i. State-owned businesses should make an effort to align their working capital

Majumdar examined the financial accounts of 20 companies to determine the "Pattern of

In order to study the "Impact of Working Capital on Profitability in Sugar Industry in

Beydokhtiabbastaleb (2007), small-scale industries are essential for economic

Mohammad Morshedur rehman (2011) - The researcher looked at how significant

Bansal used financial instruments to research "Working Capital Management in

Vijaykumar and A. Venkatachalam (1996)—Tamilnadu Sugar Corporation is the subject

Mathuva (2010) explores the impact of working capital management on business

The "Working Capital Management of Fertilizer Industry of Gujarat" is analysed by

Dalbir Singh, a commerce lecturer at the Government PG College in Bhiwani, studied in

The "Efficiency in Management of Working Capital in British American Tobacco

Hemedri I. Tikavala's study, "Working Capital Management of the Surat People's

A cross-sectional study by Lazaridis and Tryfonidis using a sample of 131 companies

In his analysis of "Working Capital Management Efficiency of Firms from

K. Madhavi (2014) - Working capital management's importance in a company's

Menon studied "Working Capital Management" at "Kirloskar Pneumatics Co. Limited,

Gayathri J. (2015) provides an overview of working capital management in this paper.

The "The Working Capital Management of Firms from the Telecommunication

Researcher K. Madhavi, Assistant Professor at the Maharani's Arts, Commerce and

i. It was discovered throughout the course of the investigations that 8 companies

In his review of "Financing Pattern of Working Capital in Indian Industries," Radhe S.

Bhattacharyya Hrishikes (1987) tries to develop a comprehensive theory and tool of

Singaravel, P. (1999) focuses on the interdependency among working capital, liquidity

Chalam G. V. and Manohar Babu B. V. (1999) observe that liquidity performance is

1. The study has the following major objectives:

1. Conversion of cash into inventory

3. Conversion of debtors into cash less credit available from creditors)

Ganesan Vedavinayagam (2007) studies the impact of working capital management on

Appuhami Ranjith B. A. (2008) investigates the impact of firms‟ capital expenditure on

1. To evaluate the financial performance

Ramachandran Azhagaiah and Janakiraman Muralidharan (2009) have attempted to