Effect of Working Capital Management on Profitability: A Study of Indian Paint Industry

Abstract

Working Capital Management is an important element of firms’ financial policy and represents the balance of current assets and current liabilities. It has a crucial impact on the working, solvency and profitability of the firm. Various studies have also contributed towards this theory that effective working capital management has positive impact in increasing firm’s value. A firm must plan effectively to maintain a healthy trade-off between liquidity and profitability. The current paper endeavors to look at the effect of working capital administration on the profitability of the Indian paint industry. For the study, 6 companies of Indian paint industry have been selected covering a period of 10 years from 2011 – 2020. To develop a relationship model between working capital management and profitability, four independent variables were used: current ratio, quick ratio, debtor turnover ratio, and inventory turnover ratio, with Return on Equity as the measure of profitability acting as a dependent variable. Panel data regression and pooled Ordinary Least Square regression were used in this study. Working capital management has a significant impact on the profitability of the Indian paint industry, according to the findings of the study.