Working Capital Management and Firms’ Performance: An Analysis of Selected Indian Cement Companies

Prior studies on this have already proved the existence of relationship between working capital and firm’s performance. In extension to the existing literature, this study is designed to investigate the relationship between working capital management and the firm’s performance i.e. impact on profitability by taking a sample of five selected Indian cement companies for the period 2001-2010. An attempt has been made to investigate the existence of relationship between the working capital management and the profitability, average receivable period, inventory conversion period, average payment period and the cash conversion cycle which expresses the efficiency of working capital. Hypotheses were tested using multiple regression analysis and Pearson’s correlation. It was found that there is a negative significant relationship between accounts receivable period and firm’s profitability, a negative relationship between Inventory conversion period and profitability, negative significant relationship between accounts payable period and profitability but a positive relationship between firm’s cash conversion cycle and its profitability. This shows that firms are selling their inventory and collecting the receivables before they have to pay for the payables.