Effect of WCM on the Profitability of Selected FMCG Companies - A Study

Abstract

Corporate sustainability is a process of creating value of shareholders and stakeholders, by proper implementation of business strategies, considering the social, environmental, and economic factors. After the major crisis of 2007-08, the financial sustainability of businesses was badly affected. And now, due to the lockdown for COVID-19 around the world, productions are getting stopped, factories are closed, and the employed are becoming unemployed. Thus, corporate financial sustainability is essential to conglomerate the social, environment, and economic pillars. For developing financial sustainability, WCM plays a very important role in every industry. In this study, DTR, ITR, CCC, and return on net worth have been used to measure the influence of working capital management on profitability. In this study, the top four FMCG companies (HUL, ITC, Marico and Nestle) have been selected for analysis. The data of the said companies have been analysed through descriptive statistics, ADF unit root test, and least square regression equation (by using EViews 11 student version software). DTR, ITR, and CTR have a positive relationship with profitability, but CCC is negatively associated with profitability. Based on the findings, we can say that the firm’s profitability is highly influenced by WCM. We also recommend that there is need to review the debtors, creditors, and inventory, periodically. Sales, purchase, and inventory departments are to work together as a united team, so that optimum inventory level can be maintained and profitability can be increased.

Keywords: Working Capital Management, Profitability, Debtors, Creditors, Inventory Turnover Ratio, Return on Net Worth, Cash Conversion Cycle, Corporate Financial Sustainability

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