Determinants of working capital case of two leading private sector cement companies in Tamilnadu

The management of current assets is similar to that of fixed assets in the sense that in both the cases a firm analyses their effects on its return and risk. In view of that this article is to examine the determinants of working capital of the two leading cement companies in Tamil Nadu during the last fifteen years. Two working capital models on the basis of ordinary least square method are identified. The Gross Working Capital Turnover Ratio and Net Working Capital Turnover Ratio are taken as dependent variable whereas profit margin, total assets turnover ratio, liquid ratio, inventory turnover ratio have been identified as explanatory variables. The regression results show from the analysis in this first model that the profit margin does not influence the working capital of ICL and MCL. Besides, the turnover ratios such as TATR and DTR determine working capital in ICL, whereas the LR and DTR positively influence the working capital (GWCTR) in MCL. On the contrary, the LR is negatively related to GWCTR and NWCTR in ICL and NWCTR in MCL. In the second model, it is observed that the turnover ratios (TATR, ITR and DTR) along with liquid ratio (LR) determine both gross working capital and net working capital in ICL, whereas DTR alone influences the gross working capital in MCL.