Impact of Working Capital Management Practices On Firm Performance: A Study Of Selected Indian Automobile Companies

Abstract

A well-planned and thoughtfully implemented working capital management practice can have a positive impact on the financial performance of the firm. Working capital management helps to strike a good balance between liquidity and profitability and plays a crucial role in day-to-day operation of the firm. Automobile sector is the one of the largest industries in the world, and it requires large amount of working capital for daily operations. Therefore, the purpose of this paper is to conduct a study of impact of working capital management practices on profitability of the Indian automobile industries and to know how working capital management practices is crucial in increasing or decreasing profitability of the firm. For this purpose, based on their financial performance, top nine ranking companies of the Indian automobile sector were selected to examine their working capital management practices. The dependent variable profit was used to measure firm performance while independent variables that included maintaining overall performance, covering debt, maintaining profitability, efficiency managing practice, liquidity solvency managing practice were used to measure working capital management practice of the firm. The relation between the two variables was investigated with a sample of data of nine Indian automobile companies for the time period of year 2003 to 2012. The regression analysis results show a significant impact of working capital management practices on the firm performance of automobile companies. The results also show the extent to which working capital management practices of selected Indian automobile firms have an impact on the financial performance of the firm as well as the significant differences in these practices among all the firms.