Strategic Approaches to Working Capital Management: Insights from a Case Study
Abstract
The management of working capital is an essential constituent of financial management for companies of all sizes. It entails handling a business's provisional assets and liabilities skilfully in order to ensure stable finances and seamless operations. Organizations can expand their profitability and liquidity by keeping their working capital at an ideal level. Accurate cash flow forecasting and effective inventory, accounts receivable, and accounts payable management are prerequisites for efficient Handling of Working Capital. This abstract acts as a starting point for understanding the core ideas and procedures related to operating capital management.
Recognizing the importance of working capital, an empirical study has been made in a Pharmaceutical Company, Aarti Drugs Ltd, Gujarat, as a first attempt, covering the period of five years from 2015-16 to 2019-20. No previous study has been made in this regard.
In the present analysis, Current Ratio, Quick Ratio, Return on Capital Employed, Return on Equity, Stock Turnover Ratio, Stock Velocity(Days), Working Capital Turnover Ratio, Debtors Turnover Ratio, and Debt to Equity Ratio have been applied as Achievement indicators for assessing the performance of the working capital.
In addition to the application of key performance indicators and for a deeper comprehension ofevaluation ofthe working capital, the mathematical frame work, developed by Prof. Bhattacharya (1997) has been applied. Performance Index (PI), Working Capital Utilization Index (UI), and Efficiency Index (EI) have been calculated as per the mathematical model.
Spearman’s rank correlation, T-test have been applied to analyse the monotonicity of the relationship between liquidity and profitability. Motaal’s Comprehensive Test of Liquidity has been applied to test the soundness of the firm as regards liquidness position
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