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Impact Of Working Capital Management On Profitibility Of Firms EFFECT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY OF FIRMS - A study on the Indian Oil Drilling & Exploration industrY
Dr. Anupam Jain
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 & firm profitability and positive relationship between Current Ratio & profitability of firms. This reveals that reducing cash...