Article
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Working Capital Management Strategies and Financial Performance: A Cause-and-Effect Analysis
Version 1
: Received: 27 December 2023 / Approved: 28 December 2023 / Online: 29 December 2023 (01:22:10 CET)
A peer-reviewed article of this Preprint also exists.
Panigrahi, A. (2023). Working Capital Management Strategies and Financial Performance: A Cause-and-Effect Analysis. Panigrahi, A. (2023). Working Capital Management Strategies and Financial Performance: A Cause-and-Effect Analysis.
Abstract
This study examines the effects of working capital management strategies on firm’s financial performance of Indian cement companies using 11-year (2010-2020) financial data of 31 companies listed in Bombay Stock Exchange. It is intended to find out whether the strategies made by finance managers with respect to the components of working capital such as average receivable period, inventory conversion period, average payment period and cash conversion cycle, etc. affects the firm’s performances individually and in total. The results of Pearson’s correlation coefficient and random effect regression model shows that there exists a negative relationship between financial performance measured in terms of return on assets (ROA) and inventory turnover period (ITP) as well as accounts payable period (APP), whereas firm’s performance is not significantly affected by accounts receivable period (ARP) and cash conversion cycle (CCC). Similarly, it has been observed that the liquidity measures such as current ratio (CR) and quick ratio (QR) have a significant positive association with ROA. Moreover, the size of the firms and leverage are inversely related to ROA but the age of the firms is not significantly affecting their financial performances. Hence, it can be concluded that how an organisation designs its working capital strategy do have an impact on its performances.
Keywords
Working Capital Management; Financial Performance; Indian Cement Companies; Bombay Stock Exchange; Panel Data
Subject
Business, Economics and Management, Finance
Copyright: This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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