Working Capital Performance of Corporate India: An Empirical Study
ICFAI Journal of Applied Finance, Vol. 13, No. 1, pp. 46-81, January 2007
Posted: 26 Jan 2007
This paper attempts to develop quantitative benchmarks at the firm and the industry level, so as to evaluate the working capital management performance of Corporate India from time to time. An earlier attempt was made by Anand (2001) based on the methodology designed by the CFO Europe and REL Consultancy Group for the year 1996-97. In another attempt, Anand and Gupta (2003) experimented with a number of parameters and different weights in the overall score to have a better picture of working capital management performance of Corporate India. The study employs the methodology developed by Anand and Gupta (2003) and provides estimates by using the data of 339 S&P CNX 500 nonfinancial companies with at least three years of publicly available records over the period 2001-02 to 2003-04 for each company and industry. During the period of study, Corporate India has achieved a Compound Annual Growth Rate (CAGR) of 26.3% in net sales and 1.6% in the three-year average cash operating margins. The length of the operating cycle and cash conversion cycle has reduced by 10.2% and 12.7% respectively on compounded annual basis. The paper finds very little evidence on the positive relationship between working capital management and firm profitability.The findings of the paper capture the dynamics of risk-return trade-off, which will help the performance evaluation of working capital management of Corporate India.
Keywords: Working Capital Management, Cash Conversion Cycle, Days' Operating Cycle, Risk-Return Trade-off
JEL Classification: G30, G39, M19
Suggested Citation: Suggested Citation