Working capital is the portion of current assets which is financed by long term sources of finances. Managing working capital in the capital intensive industries is more important as it affects the profitability of the firm. The objective of the paper is to establish a relation between the working capital and the profitability. We have used several techniques to analyse the data such as trend analysis where we have studied the movement of various components of working capital for last ten years and the ratio analysis to study the impact of different components of working capital on profitability. In factor analysis an attempt is made to club the homogeneous ratios in the form of either liquidity or profitability ratio and then correlation coefficient has been calculated between the principal component factor of liquidity and profitability ratios. We have done multiple regression analysis between the profitability and liquidity ratios of the companies under different industries. The profitability ratios like Return on Assets (ROA), Return on Equity (ROE) and Net Profit Ratio (NP) are taken as dependent variable and Debtor turnover ratio, Inventory turnover ratio, working capital turnover ratio, current ratio and Sales have been considered as independent ratios. There is very wide scope for further research in this area, need to be done more extensively. Parameters like analysis of individual debtors, creditors, stock, and cash flow analysis may further be increased to get more detail result in this area. Transition from working capital management application of Just-In-Time approach can be explored.
profitability, homogeneous, regression, component, explored
