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Working Capital Management

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Working Capital Management

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  • October 25, 2009
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Impact of Working Capital Management in the Profitability of Hindalco Industries Limited J P Singh* and Shishir Pandey**

For the successful working of any business organization, fixed and current assets play a vital role. Management of working capital is essential as it has a direct impact on profitability and liquidity. An attempt has been made in this paper to study the working capital components and the impact of working capital management on profitability of Hindalco Industries Limited. The paper also makes an attempt to study the correlation between liquidity, profitability and Profit Before Tax (PBT) of Hindalco. The study is based on secondary data collected from annual reports of Hindalco for the study period 1990 to 2007. The ratio analysis, percentage method and coefficient of correlation have been used to analyze the data. Multiple regressions were used to check the significant impact on the profitability of Hindalco.

Introduction
A successful commercial organization needs two types of assets, viz., fixed assets and current assets. Fixed assets include—land, building, plant, machinery, furniture, etc. These are not only purchased for the purpose of sale, but also for the purpose of earning profit for many years. Current assets include, raw materials, work-in-progress, finished goods, sundry debtors, bills receivables, cash, bank balance, etc. These are purchased for the purpose of production and sales, like raw material into semi finished products, semi finished products into finished products, finished products into debtors and debtors transferred into cash or bills receivables. The fixed assets are used in increasing production of an organization and the current assets are used in using the fixed assets for day to day working. The management of this working capital is known as working capital management. The term working capital refers to the amount of capital which is readily available to an organization. Management of working capital deals...