STUDY OF EFFICIENCY OF WORKING CAPITAL MANAGEMENT PRACTICES AND THE EFFECT ON THE PROFITABILITY OF THE FIRM: A STUDY OF REAL ESTATE SECTOR OF INDIA

Working capital is used to finance short term financial obligations of a firm. It becomes all the more important to study working capital in a real estate firm, as major part of their balance sheet constitutes the current assets and liabilities. It is important for these firms to have efficient working capital practices as a portion of funds is parked in inventories and accounts receivables which take a long time to convert into cash. This may lead to a shortage of cash and liquidity in times of need. Data for five big real estate firms’ operational pan India was collected for five years from secondary sources and analyzed. Ratio analysis was done to study the working capital practices of these firms and it was found out that there was scope of improvement in the inventory and receivable turnover for all the companies. Pearson correlation coefficient was calculated and analyzed to find if there was a relationship between working capital ratios and profitability ratios. It was found out that for this sector profitability of the company was positively and significantly related to the current ratio and liquid ratios. Also linear regression analysis was done and it confirmed that the profitability of the firms increased with increase in liquid assets.