Working Capital Management Efficiency of Indian Cement Industry

Efficient management of working capital is a fundamental part of the overall corporate strategy in creating the shareholders’ value. Today the management of Working Capital is one of the most important and challenging aspect of the overall financial management. Optimization of working capital balance means minimizing the working capital requirements and realizing maximum possible revenues. Efficient WCM increases firms’ free cash flow, which in turn increases the firms’ growth opportunities and return to shareholders. Even though firms traditionally are focused on long term capital budgeting and capital structure, the recent trend is that many companies across different industries focus on WCM efficiency.The present study analyses the efficiency of the working capital management and its components i.e. inventory amount, cash and bank balances and various current liabilities. The study attempts to determine the efficiency and effectiveness of management in each segment of working capital. Since the net concept of working capital has been widely taken in the present study, management of both current assets and current liabilities are also critically reviewed in its due course. A sample list of 30 Bombay Stock Exchange (BSE) listed cement companies, located at different regions of India, is selected for the study. This study is mainly confined to selected Indian cement companies using CMIE Prowess 4.0 database software and the information relating to nature of company, size, age, state and region, company background, value of total assets and annual financial statements of sample companies for the period 2006 to 2015 have been obtained from the same. The help of statistical software, SPSS 21.0 version is taken for the various statistical analyses required for this study. 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. It is found that there exists a negative relationship between profitability and number of days of accounts payables & number of days of inventory, but a positive relationship between profitability and number of days of accounts receivables. The WCM and profitability show a positive relationship (as measured by cash conversion cycle,) as against the theoretical foundation. The present analysis of the study reveals that shortening of cash conversion cycle negatively affects the profitability of the firm.