Working Capital Management of Reliance Industries Limited - a Case Study

Abstract

Working capital is an important/integral part o f the operations o f a business enterprise. Analogous to the circulatory system o f the human body, smooth working capital management ensures that the business operating cycle keeps moving without any glitches in terms o f payments o f liabilities and/or procurement o f inventories. In the event o f an inefficient working capital management, the flow o f money gets choked, supplies are interrupted and payments delayed. While inadequate working capital has the potential to disrupt production/ sales operations o f otherwise well-run and well-managed business enterprises, excessive working capital has an adverse impact on profitability and, therefore, is equally undesirable. Thus, there is an imperative need to manage working capital effectively. Working capital management can also be understood as the managerial accounting strategy focusing on maintaining efficient levels o f both components o f working capital viz., current assets and current liabilities, in respect to each other. An emerging concept in the realm o f working capital management, is that o f zero working capital, where a company is able to manage receivables and inventories in a manner that almost exactly offsets the creditors. Given an ovenvhelming significance o f the subject, a comprehensive study o f RIL, India's largest corporate house, related to its working capital decisions and practices fo r the period 2000- 2009 has been attempted here and more importantly fo r the first time, a unique attempt has been made to establish whether the concept o f zero working capital (ZWC) is evident in the way India's largest corporate manages its operations. Amongst other findings on Reliance's working capital management, a notable one is the presence of/adherence to the concept o f zero working capital (ZWC)