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WORKING CAPITAL MANAGEMENT AND FINANCIAL PERFORMANCE: EVIDENCE FROM INDIAN MANUFACTURING
Vishal Vashishth Dr. Mukesh Garg
Abstract:
This study examines data from 75 Indian manufacturing firms from 2003 to 2022 using the CMIE Prowess database. Gross operating profit (GOP), net profit ratio (NPR), and net profit margin (NPM) are the most important metrics for evaluating financial health. Cash Conversion Cycle (CCC) and Inventory Conversion Period (ICP) are two more factors linked to working capital management. Some examples of control variables are company size, revenue growth, and cash flow. Using panel data models that include both fixed and random variables, we examine the connections between financial success and working capital management. We use regression analysis to test our hypotheses. The findings show that a company's performance and profitability are greatly improved by effectively managing its working capital. In particular, a faster Receivables Collection Period (RCP) and a higher Debt Turnover Ratio (DTR) favorably affect profitability, but lengthier CCC, ICP, and Accounts Payable Period (APP) adversely affect it. In addition, CF and Firm Size (FS) have a beneficial effect on performance. There is statistical evidence that fixed effect models are more appropriate, such as the Hausman test. According to descriptive statistics, dependent variables exhibit very little variance whereas independent variables exhibit a great deal. Crucial roles in profitability are company liquidity and financial health, which the regression models explain roughly 48-49% of the performance variation.
