Working Capital Management Practices

Working capital management plays a significant role in improved profitability of firms. Firms can achieve optimal management of working capital by making the trade-off between profitability and liquidity. The studies on working capital management generally states that for the improvement in profitability we should manage our working capital effectively and most of the studies recommended to have good amount of working capital in the organization. All the researches on this topic conclude that the companies should avoid under-investment in working capital if they want higher profit margins. With negative working capital there can be a danger of insolvency but it is not true forever. We have seen companies generating good profit with a negative working capital as well as companies not able to generate good profit even with having good amount of positive working capital. Hence, the question arises that having negative working capital is good for an organization or not and if a company is earning profit continuously with having negative working capital, can we say that it is a sign of managerial efficiency or there might be the chances of possible bankruptcy of the company? This book is a compilation of few selected studies on the working capital management practices of Indian corporate and in many cases the findings of these studies are not in line with the results of the previous researches in this area, which raises a question mark on the traditional styles of working capital management practices and also induces the finance managers to think whether there can be a new and better approach to working capital management practices.