Underlying Relationship between Working Capital Management and Profitability of Pharmaceutical Companies in India
American Journal of Theoretical and Applied Business
Volume 1, Issue 1, June 2015, Pages: 27-36
Received: Jun. 4, 2015; Accepted: Jun. 12, 2015; Published: Jun. 15, 2015
Views 6290      Downloads 328
Amalenu Bhunia, Department of Commerce, University of Kalyani, West Bengal, India
Amit Das, Department of Commerce, University of Kalyani, West Bengal, India
Article Tools
Follow on us
Purpose of the study: This research work investigates the underlying relationship between working capital management and profitability of pharmaceutical companies in India. Background of the study: Effective working capital management perks up firms’ profitability and liquidity position, and as a result growing the firm’s market value. Methodology: This study is based on secondary data obtained from centre for monitoring Indian economy database for the period from 2003 to 2013. In the course of examination, descriptive statistics, correlation statistics and multiple regression test have been used. Results: Multiple regression tests corroborate a lower degree of relationship between the working capital management and profitability under study. Findings of the study: The company manger would anxiety on working capital management performance, mainly unexplained variables in justification of making shareholder wealth.
Working Capital Management, Liquidity, Profitability, Pharmaceutical Company, India, Multiple Regression Test
To cite this article
Amalenu Bhunia, Amit Das, Underlying Relationship between Working Capital Management and Profitability of Pharmaceutical Companies in India, American Journal of Theoretical and Applied Business. Vol. 1, No. 1, 2015, pp. 27-36. doi: 10.11648/j.ajtab.20150101.15
Adam Smith, The Wealth of Nations, (New York, Modern Library Inc., 1937), pp.262-263. H.G. Guthman, Analysis of Financial Statements (New York, 1953), p.63 3.
Agarwal, J.D. (1988), “A goal programming model for working capital management,” Finance India, Vol. 2, Issue 2.
Akoto, R. K., Awunyo-Vitor, D. Angmor, P. L. (2013). Working capital management and profitability: Evidence from Ghanaian listed manufacturing firms, Journal of Economics and International Finance, 5(9), 373-379.
Arnold, G 2008, Corporate Financial Management. 4th edit. Prentice Hall. Essex. pp. 526-529Arshad, Z. and Gondal, M. Y. (2013). Impact of Working Capital Management on Profitability – A Case of the Pakistan Cement Industry, Interdisciplinary Journal of Contemporary Research in Business, 5(2), 384-390.
Awad, I. and Jayyar, F. (2013). Working Capital Management, Liquidity and Profitability of the Manufacturing Sector in Palestine: Panel Co-Integration and Causality, Modern Economy, 4(10), 662-671.
Ben-Caleb, E. (2009). Working Capital Management and Profitability of Listed Companies in Nigeria: Nigeria Research Journal of Accountancy, 1 (1) 44-57.
Bhunia, A. and Das, A. (2012). Affiliation between Working Capital Management and Profitability, INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS, 3(9), 957-968.
Bhunia, A. and Khan, I.U. (2011). Liquidity Management Efficiency of Indian Steal Companies: A Case Study, Far East Journal of Psychology and Business, 3(3), 3-13.
Bhunia, A., Khan, I and Mukhuti, S, (2011). A Study of Managing Liquidity, Journal of Management Research, 3(3), retrieved from www.macrothink.org/jmr
Brealey, R., Myers, S. and Allen, F. (2006). Working Capital Management, Corporate Finance, McGrew Hill, New York, 813-832.
Bukhari, Mahum and Malik, Mohammad. Shaukat. (2014). The Working Capital Management on Corporate Performance: A Study of Firms in Cement, Chemical and Engineering Sectors of Pakistan, Pakistan Journal of Commerce and Social Sciences, 8 (1), 134-148.
Butt, H. A. (2014). Impact of working capital management on profitability of chemical sector of Pakistan. International Journal of Social Sciences and Management Studies, 1(2), 67-79.
Chakraborty, K. (2008). Working Capital and Profitability: An Empirical Analysis of Their Relationship with Reference to Selected Companies in the Indian Pharmaceutical Industry, The ICFAI Journal of Management Research, 34, 57-72.
Chary, T.S., Kasturi, R., Kumar, K.S. (2011). Relationship between Working Capital and Profitability - A Statistical Approach, International Journal of Research in Finance and Marketing, 1(7), 17-28.
Chatterjee, S. (2012). The Impact of Working Capital on the Profitability: Evidence from the Indian Firms, Available at SSRN: http://ssrn.com/abstract=2125228 or http://dx.doi.org/10.2139/ssrn.2125228
Chowdhury, A. and Amin, M. M. (2007). Working Capital Management Practiced in Pharmaceutical Companies Listed in Dhaka Stock Exchange, Brac University Journal, 4(2), 75-86.
Daniel Mogaka and Ambrose Jagongo, (2013). Working Capital Management and Firm Profitability: Empirical Evidence from Manufacturing and Construction firms listed on Nairobi Securities Exchange, Kenya, International of Accounting and Taxation, 1(1), 1-14.
Deloof, M. (2003). Does Working Capital Management Affect Profitability of Belgian Firms?, Journal of Business Finance & Accounting, 30(3), 573-587.
Eljelly, A. (2004). Liquidity-Profitability Tradeoff: An empirical Investigation in an Emerging Market, International Journal of Commerce & Management, 14(2), 48-61.
E. W. Walker, (1935). Essentials of Financial Management, Prentice Hall Inc., New York.
Falope O.I. and Ajilore, O.T. (2009). Working capital management and corporate profitability: evidence from panel data analysis of selected quoted companies in Nigeria, Research Journal of Business Management.
Jarvis, R., Kitching, J., Curran, J. and Lightfoot, G. (1996). The Financial Management of Small Firms: An Alternative Perspective, ACCA Research Report No. 49.
Garcia-Teruel, P. J. and Martinez-Solano, P. (2007). Effects of Working Capital Management on SME Profitability, International Journal of Managerial Finance, 3(2), 164-177.
Ghosh SK, Majhi. S. (2003). Working capital management efficiency: a study on the Indian cement industry. Retrieved from http://www.icwai.org/icwai/knowledgebank/fm47.pdf
Gill, A., Nahum, B., Mathur, N. (2010). The Relationship between Working Capital Management And Profitability: Evidence From The United States, Business and Economics Journal, 10, 1-9.
Gomes, D. F. N. (2013). How does Working Capital Management affect Firms’ Profitability? Evidence from Portugal, Master Thesis.
Ganesan, V. (2007). An Analysis of Working Capital Management Efficiency in Telecommunication Equipment Industry, Rivier Academic Journal, 3(2), 1-3.
Haresh, B. (2012). Working Capital Management and Profitability: Evidence from India – An Empirical Study, GFJMR, 5, 1-16.
Hasan, A. K., Halil, E. A., Arzu, O. C., and Salih, D. (2011).The Relationship between Working Capital Management and Profitability: Evidence from an Emerging Market. International Research Journal of Finance and Economics, 62, 61 – 67.
Hina. A. (2014). Impact of Working Capital Management on Profitability”, European Scientific Journal, 10 (1), 374-381.
Hulia, R. (2014). Effects of Working Capital Management on Firms Profits-Evidence from the Pharmaceutical Sector, International Journal of Management and Social Sciences Research, 3(1), 103-107.
Iqbal, N., Ahmad, N. and Riaz, J. (2014). The Relationship between Working Capital Management and Profitability: Evidence from Pakistan, International Letters of Social and Humanistic Sciences Vol 20, pp 14-25.
Karani, H. K. (2013). The Effect of Corporate Governance on Working Capital of Manufacturing Firms’ Listed at the Nairobi Securities Exchange, Master Thesis, available at http://chss.uonbi.ac.ke/sites/default/files/chss/PROJECT-HENRY%20KARANI-D61%2063370%202011.pdf
Karaduman, H. A., Akbas, H. E., Ozsozgun, A., and Durer, S. (2010). Effects of Working Capital Management on Profitability: The Case for Selected Companies in the Istanbul Stock Exchange (2005-2008), International Journal of Economics and Finance Studies, 2(2), 47-54.
Lawal, A. A., Abiola, B. I. and Oyewole, O. M. (2015). Effect of Working Capital Management on the Profitability of Selected Manufacturing Companies in Nigeria, International Journal of Sciences: Basic and Applied Research, 19(2), 370-386.
Lazaridis, I. and Tryfonidis, D. (2006). Relationship between Working Capital Management and Profitability of Listed Companies in the Athens Stock Exchange, Journal of Financial Management and Analysis, 19(1), 26-35.
Mathuva, D. M. (2010). The Influence of Working Capital Management Components on Corporate Profitability: A Survey on Kenyan Listed Firms, Research Journal of Business Management, 4, 1-11.
Mehta, A. (2014). Capital Management and Profitability Relationship-Evidences from Emerging Markets of UAE, International Journal of Management Excellence, 2(3), 23-37.
Moffatt, M. (2002). Economics. Retrieved from http://economics.about.com: http://economics.about.com/cs/economicsglossary/g/liquidity.htm.
Maness, T.S. & Zietlow, J.T. (2005). Short-term financial management. 3rd edition, Ohio: South-Western/Thomson Learning. http://shodhganga.inflibnet.ac.in/bitstream/10603/13558/13/13_chapter%202.pdf
Padachi, K. (2006). Trend in Working Capital Management and its Impact on Firms' Performance: An Analysis of Mauritian Small Manufacturing Firms, International Review of Business Research Papers, 2(2), 45-58.
Rafuse, M. E. (1996). Working Capital Management: An Urgent Need to Refocus, Journal of Management Decision, 34(2), 59-63.
Rahman, M. M. (2011). Working Capital Management and Profitability: A Study on Textiles Industry, ASA University Review, 5(1), 115-132.
Raheman, A., and Nasr, M. (2007). Working capital management and profitability – case of Pakistani firms, International Review of Business Research Papers, 3(1), 279-300.
Rehn, E. (2012). Effects of Working Capital Management on Company Profitability, Master’s thesis, available at https://helda.helsinki.fi/bitstream/handle/10138/32507/rehn.pdf
Ricci, C., & Vito, N. (2000). International working capital practices in the UK. European Financial Management, 6(1), 69-84.
Salauddin, D. A. (2001). Profitability of Pharmaceutical Companies of Bangladesh, The Chittagong University Journal of Commerce, 16, 54.
Samiloglu F.and Demirgunes K. (2008). The Effect of Working Capital Management on Firm Profitability: Evidence from Turkey.The International Journal of Applied Economics and Finance.
Scherr, F. C. (2007). Modern Working Capital Management, Prentice-Hall International, Inc. pp. 1-3.
Scott, D. (2003). Houghton Mifflin Company. Retrieved from Houghton Mifflin Company: http://financialdictionary.thefreedictionary.com/liquidity
Shin HH, S. L. (1998). Efficiency of working capital management and corporate profitability, Financial Practice and Education, 37-45.
Shubita, M. F. (2013). Working Capital Management and Profitability: A Case of Industrial Jordanian Companies, International Journal of Business and Social Science, 4(8), 51-65.
Smith, K. (1980). Profitability versus Liquidity Tradeoffs in Working Capital Management, in Readings on the Management of Working Capital, Ed. K. V. Smith, St. Paul, West Publishing Company, 549-562.
Smith, M. B. (1997). Measuring Association between Working Capital and Return on Investment. South African Journal of Business Management, 28(1).
Trinh, H. T. (2012). Influence of Working Capital Management on Company Profitability, Master Thesis.
Vishnani, S. and Shah, B. K. (2007). Impact of Working Capital Management Policies on Corporate Performance—An Empirical Study. Global Business Review, 8(2), 267-281.
Wang, Y. (2002). Liquidity management, operating performance, and corporate value: evidence from Japan and Taiwan, Journal of Multinational Financial Management, 12, 159-169.
A Bhunia, A., and Brahma, B. (2011). Importance of Liquidity Management on Profitability. Asian Journal of Business Management, 3(2), 108-117.
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
Tel: (001)347-983-5186