KHOJ: Journal of Indian Management Research and Practices

Sandhya Harkawat ¹, Chinnam S. Reddy ²

Affiliations
1 S. K. Patel Institute of Management and Computer Studies, Gandhinagar, Gujarat, IN
2 Marwadi Education and Research Foundation, Rajkot, Gujarat, IN

Abstract

Working Capital Management has its effect on profitability of the firm. In this research, we have selected a sample of Electric Equipment companies listed in Nifty 50 for a period of 10 years from 2001 - 2010, we have studied the effect of different variables of working capital management including the Average collection period, Inventory turnover in days, Average payment period, and Current ratio on the Net operating profitability of the firms.. Correlation and linear multiple regression are used for analysis using E-views Statistical software. The results show, that there is a strong negative relationship between variables of the working capital management and profitability of the firm. It means that as the Average collection period, Inventory turnover in days, Current ratio increases, it will lead to decreasing profitability of the firm, as Average payment period increases profitability decreases and managers can create a positive value for the shareholders by reducing the capital requirement to a possible minimum level. We find that there is a significant negative relationship between liquidity and profitability.

Keywords

Cash Conversion Cycle, Net Operating Profitability, Liquidity, Working Capital Management, Average Collection Period, Average Payment Period, Inventory Turnover in Days, Current Ratio.

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