Effect of Working Capital Management on Firms Profitability: Evidence from Selected Indian Retail Firms

Abstract

Retailing in India contributes 14 to 15 % of the GDP. The success of a retail firm is largely dependent on the its ability of promoters to raise funds, access to real estate, operating synergies between different departments (sourcing, logistics and distribution) and ability to ensure consumers' loyalty. This study intends to investigate the relationship between various elements of working capita l and profitability of selected Indian retail firms. A sample of 51 firms in the retail sector. A panel data for 6 years (2006-07 to 2011-12) are analysed. According to the study reduction in pa yment period is rewarded through discounts which in turn tends to positively impact on profits of the retail firms. The results show significant relationship between working capital management and profitability of Indian firms offering extended credit, customising credit policies a nd credit strucutures are recommended to increase revenues and profits.