Liquidity management policies of select Indian Pharmaceutical companies in the post-reform regime

With the advent of economic reforms in India in late 1980s, on one hand we have multiple investment opportunities before us and on the other hand our country is exposed to unprecedented challenges emanating from dynamic and volatile nature of socio-political economy. As a result, the earnings trends, cost behaviour pattern, financing strategies, working capital (WC) management policies and other allied issues in the business world have altered notably and to survive in such a competitive corporate world the business houses are forced to rethink about their existing corporate strategies. In the study an effort was made to assess the impact of working capital investment policy and financing policy on overall profitability. The results were obtained from the study were conflicting. The results of the analysis of correlation between DIP and ROCE showed positive relationship in almost all the cases which mismatches with the accepted norm. The outcome derived from the correlation analysis between DFP and ROCE reinforced the generally accepted fact that higher levels of short term funds have positive influence on overall profitability. Regression analysis proved that in ninety per cent cases the ROCE stepped up with an increase DIP whereas in eighty percent cases the ROCE increased due to one unit increase in DFP.