Working Capital Management Policy and Profitability: An Empirical Study

Abstract

Management of working capital is an important tool to avoid business as well as financial risk. The effective working capital management includes the proper management of current assets and current liabilities. The working capital management policy is a key point that determines the volume of current assets and current liabilities with respect to total assets. On the basis of current liabilities working capital management policy indicates the working capital financing policy and on the basis of current assets it indicates the working capital investment policy. The strategy in respect of Working capital financing and working capital investment policy is different in different industrial sectors. This study tries to investigate the proper mix of working capital financing policy and working capital investment policy followed by textile industry listed under Bombay stock exchange. The sample of this study includes 43 textile sectors over the period of 2006 to 2017. The result of this study indicates Working capital investment policy has significant negative effect on profitability and working capital financing policy has also negative effect on profitability.]