Impact of working capital strategies on the profitability of the selected firms in India
Dr. B Arun Kumar, Karthik Reddy
Working capital management is plays a crucial role in short term financial decision making process. Working capital management strategies included both investment and financial strategies in which former deal with investment in current assets and later deals with financing of current assets. Working capital investment and financing strategies affects both liquidity and profitability of the firm. Many research studies focused on analyzing the relationship between working capital strategies and liquidity and profitability, but no study emphasized on impact of working capital strategic shift on profitability of the firm which paved a way to the present study. Therefore, in the present study we fulfilled this gap by analyzing impact of working capital strategic change on profitability of selected four companies from four different industries which adopted required strategic change during 2007-08 to 2016-17. The study found strong positive relationship between current assets and profitability during both conservative and aggressive investment strategy in case of Pidility Ind Ltd. On the hand, study observed negative relationship between current assets and profitability during aggressive working capital investment strategy and positive relationship during conservative working capital investment strategy in case of Century Prot. The study revealed negative relationship between current liabilities and profitability during aggressive working capital financing strategy and positive relationship between conservative working capital financing strategy in case of Hindustan Food Ltd. In contrast, the study revealed negative relationship between current liabilities and profitability during conservative working capital financing strategy and positive relationship between aggressive working capital financing strategy in case of TVS electronics. Overall, the study revealed insignificant impact of shift in working capital investment/financing strategy on profitability in case of three companies, and significant impact in case of Pidility Ind Ltd.