Working Capital Management: A Comparative Study of Different Ownerships

If a firm has inadequate working capital – the money necessary to keep your business running – the firm is doomed to fail. Many firms, that are profitable on paper, are enforced to “close their doors” due to their helplessness to meet short-term debts when they come due. However, by implementing sound working capital management strategies, your enterprise can flourish; in other words, assets are working for the firm. The objective of Working Capital Management is to make certain that the firm is able to carry on its operations and that it has enough cash flow to satisfy both maturing short-term debt and upcoming operational expenses. In order to improve the working capital management practices, it is essential for the finance managers to adopt a proper approach of working capital decisions making to drive their respective firms towards success in order to generate the value for the shareholders. In addition to the proper approach, there may be some other factors that may prove to be important while dealing with working capital decision making and certainly these factors may include ownership, government regulation, managerial empowerment and cultural factors.

Therefore, the main purpose of this paper is to report comparative findings of a survey of working capital management practices of selected agribusiness firms from dairy co-operatives, private and MNC dairy firms as a part of research thesis completed in July 2008. This paper is also an attempt to know the effect of the ownership, government regulation, managerial empowerment and cultural factor on the working capital decision making. Working capital management practices of the firms are analyzed with the help of a two dimensional approach for working capital decision making, developed as a part of the thesis, in order to analyze the improvements in the working capital management practices. A sample of three state dairy co-operatives, three private dairy and three MNC dairy firms was taken for the study. With each firm one of its supplier and customer was also selected to study the level of cooperation between the firm-supplier and firmcustomer. These findings provide deeper insights into working capital management practices and provide suggestions for improvements.