Managing Working Capital Efficiency in Capital Goods Sector in India

Abstract

Efficient management of working capital is an important indicator of sound health of an organization. It means management of various components of working capital in such a way that an adequate amount of working capital is maintained for smooth running of a firm and for fulfillment of twin objectives of liquidity and profitability. The present study aims to examine the efficiency of working capital management practices of 14 companies in capital goods sector (as per BSE 200 companies) from the year 2000–2001 to 2009–2010. The analysis is based on Performance Index, Utilization Index and Efficiency Index of Working Capital Management. The study shows that number of firm’s efficiently managing working capital varies from 35 per cent to 78 per cent over the span of time period under study. The study also proposes to evaluate the ability of individual firms in reaching the target level of efficiency, i.e., average performance of industry. The revelations made by the study if followed are bound to generate increased profits and profitability of leading corporate of India. The study also attempts to study the degree of the relationship between the Efficiency Index and Profitability measured by Income to Current Assets and Income to Average Total Assets.

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