Efficiency of Working Capital Management by Firms Listed in BSE SENSEX

Abstract

Working capital management assesses a company's short-term financial health by examining daily short-term assets and liabilities. Efficient working capital management involves planning and administration of current obligations and assets in such a way that excessive investments in current assets are avoided and also avoids the risk of meeting short-term commitments on time. Efficient working capital management entails a trade-off between profitability and liquidity risks and ensures that firms may have an optimum working capital that maximizes their value. The study is intended to analyze the efficiency of working capital management by firms listed in the BSE SENSEX. Correlation and regression analysis has been used to study the relationships between working capital efficiency, profitability and liquidity. One-way ANOVA has also been used to see that the means of components of working capital are significantly varying and Turkey’s HSD test has been used to see which component is varying significantly.  The study's finding shows that employing the Working capital cycle does not provide any significant forecast of profitability. The relationship between DSO and CCE is not significant enough to predict the efficiency of management in converting its profits into cash. According to the study, profitability and liquidity are positively associated, but liquidity is inversely related to WCC. There is evidence that working capital management in companies listed in BSE SENSEX is poor. The study suggests that companies listed on the BSE SENSEX should focus on DPO to improve their working capital management efficiency and secure more credit from suppliers.