Working Capital Structure and Liquidity Analysis of Pharmaceutical Companies

Working capital is the life blood of every concern. This concept is gaining serious attention all over the world. The success or failure of the company is dependent on how it manages it working capital. In order to sustain for long and meet its obligations a firm must be highly liquid. So, there is a need to develop a strategy which will help in maintaining liquidity that will ultimately affect shareholders wealth. There must be optimum level of working capital. Too much or too low working capital will at last have an impact on the profitability of the concern. The present study is done in this context. This paper evaluates the working capital structure and liquidity position of 24 pharmaceutical companies that are listed on BSE. The period of study is 10 years i.e. from 2006 to 2015. The research is purely based on secondary data. With the help of averages and One-Way Anova, it is concluded that some companies form inventory as the highest portion of current assets and some have debtors as the highest part. Some companies have negative working capital. With the help of current ratio and quick ratio, we come to know that the liquidity position of the companies is not very sound. Most of the companies have working capital turnover ratio more than the industry average depicting that they are able to generate sales more frequently out of the working capital.