TITLE

Analysis of Effects of Working Capital Management on Corporate Profitability of Indian Manufacturing Firms

AUTHOR(S)
Arunkumar, O. N.; Radharamanan, T.
PUB. DATE
October 2011
SOURCE
International Journal of Business Insights & Transformation;Oct2011-Mar2012, Vol. 5 Issue 1, p71
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This paper analyzes the effect of working capital management on the profitability of manufacturing firms. The study considers different variables affecting working capital management and their effect on the profitability of manufacturing firms. The variables considered are as debtor's days, inventory days, creditor's days, and cash velocity, working capital policy, net working capital leverage, size of the firm, and current ratio. The authors apply correlation and regression analysis to identify the effects of the above variables on profitability. The results of correlation analysis show that there is negative relation between profitability and debtor's days, inventory days, and creditor's days. Regression analysis uses two different methods, the fixed effects model and ordinary least squares model. The regression analysis reveals that the cash velocity, size of the firm, and net working capital leverage are significant in two methods. The study shows a positive relationship for number of days of inventory and number of days of accounts payable with the profitability. The study also finds that profitability improves when a shorter cash conversion cycle exists and, when the current assets and current liabilities are equal. The results further show that cash velocity and firm size are significant in both the models.
ACCESSION #
75377473

 

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