IMPACT OF WORKING CAPITAL ON THE PROFITABILITY OF THE COMPANY

Abstract

Working capital is a life blood of every organization, as they require a consistent amount of cash in hand is important to make routine payments, cover unanticipated costs and purchase of raw materials used in production of goods and services. A business uses working capital to meet day today expenses and its operations. Working capital is the difference between firm’s current assets and current liabilities or debts. The effective management of working capital is important to maintain trade-off between liquidity and profitability. This paper analyzed the impact of working capital on the profitability of the organization but the relationship between working capital management and the profitability of the firm vary from industry to industry Filbeck and Krueger (2005) highlighted the importance of efficient of working capital management by carrying out analysis of working capital management policies of 32 nonfinancial industries in United States of America. The result revealed that significant differences exist between industries in working capital practice overtime.