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Trends in Working Capital Management and Evidences of Zero Working Capital:An Empirical Investigation in SAIL and TSL


Affiliations
1 Department of Commerce, Vellalar College for Women, Erode, India
2 Vellalar College for Women, Erode, India
 

The manufacturing companies subjected to operating cycle aim at shorter conversion cycle, so that working capital requirements are managed spontaneously without tapping external sources. It is in this context the concept of zero working capital is gaining momentum. Hence an attempt has been made in the present study to observe between the sample companies-SAIL and TSL the trends in liquidity management; trends in percentage share of individual components in the total current assets; and whether the strategy of zero working capital has been adopted and further its impact on profitability. The study covers a period of ten years from 2005-06 to 2014-15, of which the first five years (2005-06 to 2009-10) were taken as phase I and the second five years (2010-11 to 2014-15) were taken as Phase II and the data of these two sets stand independent. For the purpose of analysis relevant accounting ratios, descriptive statistics, correlation and regression coefficients were computed. Null hypotheses were set and ‘t’ and ‘F’ tests were applied to draw conclusion. The study has divulged that unlike SAIL, TSL was adopting zero working capital consistently throughout the study period and has impacted significantly on the variability of its Return on Capital Employed. This, however, could be continued without straining the relationship with creditors.

Keywords

Cash Conversion Cycle, Zero Working Capital, Zero Working Capital Ratio.
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  • Trends in Working Capital Management and Evidences of Zero Working Capital:An Empirical Investigation in SAIL and TSL

Abstract Views: 410  |  PDF Views: 327

Authors

R. Rajamani
Department of Commerce, Vellalar College for Women, Erode, India
S. Harini
Vellalar College for Women, Erode, India
A. Gomathi
Vellalar College for Women, Erode, India

Abstract


The manufacturing companies subjected to operating cycle aim at shorter conversion cycle, so that working capital requirements are managed spontaneously without tapping external sources. It is in this context the concept of zero working capital is gaining momentum. Hence an attempt has been made in the present study to observe between the sample companies-SAIL and TSL the trends in liquidity management; trends in percentage share of individual components in the total current assets; and whether the strategy of zero working capital has been adopted and further its impact on profitability. The study covers a period of ten years from 2005-06 to 2014-15, of which the first five years (2005-06 to 2009-10) were taken as phase I and the second five years (2010-11 to 2014-15) were taken as Phase II and the data of these two sets stand independent. For the purpose of analysis relevant accounting ratios, descriptive statistics, correlation and regression coefficients were computed. Null hypotheses were set and ‘t’ and ‘F’ tests were applied to draw conclusion. The study has divulged that unlike SAIL, TSL was adopting zero working capital consistently throughout the study period and has impacted significantly on the variability of its Return on Capital Employed. This, however, could be continued without straining the relationship with creditors.

Keywords


Cash Conversion Cycle, Zero Working Capital, Zero Working Capital Ratio.

References





DOI: https://doi.org/10.15613/hijrh%2F2016%2Fv3i1%2F111732