Variables Affecting Working Capital Management of Tata Motors: Factor Analysis Approach Using R Programming

Abstract

Today, several factors contribute to the working capital management are difficult to examine. Data collected on these factors often has several variables. It is a non-trivial exercise to determine which of the factors that significantly influences the working capital. This paper adopts the use of Principal Component Analysis (PCA) on the several variables expected to influence the working capital management of Tata Motors. The principal component analyses have identified the factors and are expected to assist the mangers to identify areas where they might improve financial performance of their operation. Finally the variables ROA, DTO, ITO, CSR, CR are having communalities greater than 0.5 are incorporated and Each variable is loaded on a single component, thereby enhancing the interpretability of the factors. The variables can be broadly classified in to four viz, profitability (ROA), efficiency (DTO and ITO), absolute liquidity(CSR) and liquidity factor(CR). The above identified variables can be used for multiple regression analysis.

Keywords: Working Capital Management, Factor Analysis using R

JEL Classification: G