Journal of Management Research and Analysis
Year : 2014, Volume : 1, Issue : 1
First page : ( 100) Last page : ( 112)
Print ISSN : 2394-2762. Online ISSN : 2394-2770.

Understanding the working capital financing strategy (A case study of Lupin limited)

Dr. Panigrahi Ashok Kumar*

*Corresponding author: Dr. Ashok Kumar Panigrahi, Associate Professor in Finance, Narsee Monjee Institute of Management Studies, NMIMS University, Shirpur. E-Mail: panigrahi.ak@gmail.com

JEL Classification: G30, G32

Online published on 21 March, 2015.

Abstract

Working capital management as a financial strategy has its effects on liquidity as well as profitability of the firm. The present study investigates the relationship among the aggressive/conservative working capital policies and profitability of Lupin Limited for the period of 2010–2014. The effect of different variables of working capital management including current ratio and collection days on profitability was used for analysis. The study shows that there is a positive correlation between liquidity and profitability of the firm. It indicates that the investment in current assets lies in such a specified domain that increase in liquidity leads to an increase in profitability and vice-versa. The relationship between cash conversion cycle and ROCE indicate positive but insignificant relationship. Thus, the management may increase its investment in current assets up to that point of liquidity-profitability frontier where the curve changes its curvature from zero to negative because after that point the relationship between liquidity and profitability would become negative which is not desirable. The study investigated the relationship between the aggressive/conservative working capital policies of Lupin Ltd. We found a positive relationship between the profitability measures of the company and degree of conservativeness of working capital investment and financing policies. The company yields a positive return if it follows a conservative working capital policy i.e. with more short-term funds.

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Keywords

Working capital, current assets, liquidity, profitability.

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