Buy Now @ ₹ 200.00
Preview
Efficient management of working Capital is one of the pre-conditions for the success of an
enterprise. Efficient management of working capital means management of various
components of working capital in such a way that an adequate amount of working capital
is maintained for smooth running of a firm. An optimal working capital management is
expected to contribute positively to the creation of firm value. To reach optimal working
capital management firm manager should control the trade off between profitability and
liquidity accurately. The purpose of this study is to investigate the relationship between
working capital management and firm’s profitability.
In this study, we have selected a sample of 4 Indian Oil Drilling and Exploration firms and
taken their financial data for a period of 5 years from 2005– 2009 and studied the effect of
different variables of working capital management including the Cash conversion cycle
and Current ratio on the profitability of the firms.
The study shows that there is a negative significant relationship between cash conversion
cycle and firm profitability and positive relationship between Current Ratio and profitability
of firms. This reveals that reducing cash conversion period and increasing the current ratio
results into profitability increase. Thus, in purpose to create shareholder value, firm manager
should concern on shorten of cash conversion cycle till accomplish optimal level.