Working Capital Structure and Liquidity Analysis: An Empirical Research of Indian Commercial Vehicles Industry

Abstract

The structure of working capital and liquidity analysis plays a key role in the process of wealth maximization of shareholders. The firm should, therefore, make judicious investment in various current assets. Having attempted to study effectiveness of structuring the working capital, the study revealed that the sample companies on an aggregate basis invested most of their funds in inventories followed by trade receivables and loans and advances. The firms had held very insignificant amount of funds in cash and near cash assets. The study also revealed that the variation between current assets turnover ratio and working capital turnover ratio was very high across the industry which, in turn, implies that the sample companies achieved higher sales with less working capital. The application of coefficient of correlation revealed that the current assets of Bajaj Tempo Ltd., Eicher Motors Ltd., and Swaraj Mazad Ltd. varied significantly with sales and all the sample companies were efficient in terms of achieving higher sales with lower levels of current assets.