Towards Excellence: An Indexed, Refereed & Peer Reviewed

Towards Excellence: An Indexed, Refereed & Peer Reviewed Journal of Higher Education / Ms. Ruchi Joshi / Page 85-102

DEC, 2015. VOL.7. ISSUE NO. 2 www.ascgujarat.org Page | 85

WORKING CAPITAL MANAGEMENT ON PROFITABILITY AND

LIQUIDITY IN SELECTED INDIAN AUTOMOBILE SECTOR

Ruchi S. Joshi

ABSTRACT

Working capital is nerve system of any business. Without proper working capital

management company cannot achieve its objectives and not possible to maintain

financial soundness. So in this perspective the purpose of the study is to analyse

and to evaluate working capital management of the selected five automobile

companies for the period of 2009 to 2014. The result shows that there is a

significant impact of working capital management on firm’s performance for

automobile industry.

Introduction:

One of the most important areas in the day to day management of the firm is the management of

working capital. Working capital refers to the funds invested in the current assets i.e. investment

in stock, sundry debtors, cash and others current are essential to use fixed assets profitability for

e.g.: A machinery cannot be used without raw materials. The investments on the purchase of raw

material are identified as working capital. It is obvious that a certain amount of the fund is

always tied up in raw material inventories. Working capital may be regarded as lifeblood of a

business. Its effective provision can do much ensure the success of the business, while its

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inefficient management can lead not only loss of the profits but also the ultimate downfall of

what otherwise might be considered as promising concern.

The importance of working capital in commercial under takings can never be over emphasized.

A concerned needs funds for its day to day running. A large amount of working capital would

mean that the company has idle funds the various study is conducted by the bureau of public

enterprises have shown that one of the reasons for poor performance of the public sector

undertaking in our country has been the large amount of the funds locked up in working capital.

Since funds have a cost, the company has to pay huge amount as interest on funds. This results in

over the capitalization. Over the capitalization implies that company has too large funds for its

requirements, resulting in low rate of the return, a situation which implies a less than optimal use

of resources. A firm has therefore, to be very careful in estimating its working capital

requirements.

Review of Literature:

• Azhagiah Ramchandra and Muralldharan, Janakiraman has analysed the relationship between

working Capital Management efficiency and Earnings before Interest& Taxes of the Paper

Industry in India during 1997 to 2005-2006. The study reveals that the Paper Industry has

managed the working capital satisfactorily. The Paper Industry in India performs remarkably

well during the period, however, less profitable firms wait longer to pay their bills, and pursue

a decrease in CCC. To analyse the firms efficiency in working capital min the paper industry

in India.

• Sadiamajeed, Muhammad Abdul Majidmakki , Saba Saleem and Tariq Aziz (2006 to 2010

in their Research purpose of they study (2006 to 2010) the impact of Cash conversion

cycle(CCC) on the performance of Pakistan manufacturing firms. The study uses the sample of

32 companies selected randomly from three manufacturing sectors like chemical, automobiles

and construction & material for the period five years ranging from 2006 to 2010. The correlation

and regression analysis are used to examine the relationship of CCC with firms performance:

Return on Assets (ROA), Return on Equity (ROE) and Operating Profit (EBIT). The study

examines the impact of different variables of cash conversion cycle on firms. The study finds

that the average collection period of accounts receivables, inventory conversion period and CCC

have negative relationship with firms performance.’

• Prof. Dr. Hong Yuh Ching, Prof. MSc. Ayrton Novazzi and Prof. Dr. Fábio Gerab (2011) in

their research paper analyses the Relationship between Working Capital Management and

Profitability .They used a sample of 131companies listed in Brazilian Listed company the




Athnes Stock Exchange for the period of 2001-2004. The independent variable used were fixed

financial assets, the natural logarithm of sales, financial debt ratio, cash conversion Cycle

and its components – days inventory, days receivable and days payable. The dependent

variable is profitability measured by gross operating profit. The research findings show negative

relationship between cash conversion cycle, financial debt and profitability, while fixed financial

assets have positive coefficient.

• Dr. Muhammad AZAM and Syed Irfan HAIDER (2011) in their research paper analyses the

effect of working capital on firm’s performance of non-financial institution of KSE-30 Index.

The purpose of this study is to investigate the impact of working Capital Management on

firms‟ performance for non-financial institutions listed in Karachi Stock Exchange (KSE-Panel

30) Index. They used total of 172 listed companies from the databases of Bloomberg. They

randomly selected five years data (2003 to 2007). They applied two different techniques for

analysing the data that are multiple regression and correlation. A panel data has been used in

this study for 21 Kse-30 Index listed firms over a period for the year 2001 to 2010. The

variables that include profitability, conversion cycle and its related elements and the

relationship that exists between them. From his research it was found that the relationships

among these variables are strongly negatively.

• Daniel mogaka makori and ambrose jagongo (2013) in their research paper analyses the effect

of working capital management on firms profitability in Kenya for the period 2003 to 2012.

The study finds a negative relationship between profitability and number of day’s accounts

receivable and cash conversion cycle, but a positive relationship between profitability and

number of days of inventory and number of days payable. Moreover, the financial leverage,

sales growth, current ratio and firm size also have significant effects on the firm’s profitability.

Research Methodology:

1. Selection of the topic:

In Present day due to increase in competition, Working capital is becoming necessary for the

Organization. It is that Part of capital which is necessary to undertake day to day expenditure

of the business organization. Whatever may be the Organization working capital plays an

important role, as the company needs capital for its day to day expenditure. Many company fail

each year due to poor working capital management practices. Here creeps the important and

need of efficient working capital management.

2. Objectives of the study:




• To Analyses and evaluate working capital management of selected units.

• To evaluate the inventory, receivable, payment and cash management performance.

• To compare the selected units of the Automobile Sector regarding management of

Working capital.

• To know the Profitability and Liquidity Position in selected Automobile In its impact

on Working capital.

3. Sample Size:

Total five Automobile companies are selected which are as follow:

Ashok Leyland, Bajaj, Hero Honda, Hindustan Motors Limited and Tata Motors.

4. Tools and Techniques:

Table: 1

5. Data collection:

In this study secondary data is used. This data is obtained from published annual reports.

6. Time period:

This study is based on the data of ten years commencing from 2009 to 2014.

Variables Symbols Measurement

Dependent Variables

Return on Assets ROA Net Income/Total Assets

Return on Equity ROE Net Income of

shareholder/Shareholders Equity

Operating Profit Ratio EBIT Cost of goods sold +operating

expenses*100/Net Sale

Independent Variables

Avg. Receivable Collection Period ARCP Avg.Receivable*365days/Net Sale

Avg. Conversion Inventory Period ACIP Avg. Inventory*365days/COGS

Avg. Payment Period APP Avg. payment*365days/Purchase

Cash Conversion Cycle CCC ARCP+ACIP-APP

Sales Variables (Ratio)

Inventory Turnover ITO COGS/Avg. Stock

Debtors Turnover Ratio DTR Credit sales/Avg. Debtors

Current Ratio CR Current Assets/Current Liability

Quick Ratio QR Quick Assets/Current Liability

Leverage Ratio LR Short term +long term Loan/total

Assets




7. Limitation of the study:

The study is limited to the small sample of Indian Auto mobile Companies, so the result of the

study is only indicative and conclusive.

• The Study is limited five years 2009-2010 to 2013-2014 performance of the company.

• The data is used in this study have been taken from published annual report only.

• This study is conducted within a short period.

• This study is give the information about only selected company and selected time period.

Data analysis and interpretation:

Table: 2 Return on Assets:

Return On Assets

Year

Ashok

Leyland

Bajaj

Hero Honda

Hindustan

Motors

Tata Motors

2009-2010 0.79 2.82 4.36 2.24 2.078

2010-2011 1.05 3.28 4.19 3.09 2.27

2011-2012 1.08 1.82 2.42 1.45 1.14

2012-2013 0.96 1.64 2.5 2.76 0.9

2013-2014 0.78 0.165 2.49 0.9999 1.06

Above table: 2 Show that Return on Assets Condition in different company for year 2009 to

2014. In Ashok Leyland company Return on Assets is in year 2009-2010 is 0.79 and its increase

in year 2011 and 2012 at 2013 and 2014 it is also decrease. In Bajaj company Return on Assets is

in year 2009-2010 is 2.82 and its increase in year 2011 and in 2012 and 2013 it is decrease in

2014 it is also decrease. In Hero Honda company Return on Assets is in year 2009-2010 is 4.36

and it is decreases in the next three years .In Hindustan Motors Ltd company Return on Assets is

in year 2009- 2010 is 2.24 and its increase in year 2011 it is increases and in 2012 it is decrease

and 2013 it is increase and in 2014 it is also decrease and it is very low in this year and it is

0.9999. . In Tata Motors Return on Assets is in year 2009-2010 is 2.078 and its increase in year

2011 it increase in this year and in 2012 and 2013 it is decrease and in 2014 it is increase.

Table: 3 Return on Equity:

Return on Equity

Return On Equity Year

Ashok

Leyland Bajaj Hero Honda

Hindustan

Motors Tata Motors

2009-2010 27.57 20.24 86.76 1.069 14.38

2010-2011 29.79 16.61 74.01 1.097 30.06




2011-2012 15.82 21.01 107.04 0.34 52.25

2012-2013 16.74 27.87 125.34 0.355 58.59

2013-2014 14.99 67.66 140.77 0.38 101.9

Above table: 3 Show that Return on Equity Condition in different company for year 2009-2010

to2013-2014. In Ashok Leyland Company Return on Equity is in year 2009-2010 is 27.57 and its

increase in year 2011 and in 2012 it is decrease and in 2013 it is 16 74 and 2014 it is decrease. In

Bajaj company Return on equity is in year 2009-2010 is 20.24 and its decrease in year 2011 it is

16.61 and in 2012 it is increase at 21.0 and 2013 it is also increase and it is 27.87 and in 2014

it is also increase at 67.77 in this year it is more increase . In Hero Honda company Return on

Equity is in year 2009- 2010 is 87.76 and it’s in year 2011 it is 74.01 and in 2012 it is 107.04 and

2013 it is increase and it is 125.34 and in 2014 it is also increase at 140.77. In Hindustan Motors

Ltd company Return on equity is in year 2009-2010 is 1.069d it is in year 2011 it is 1.097 it’s

decrease in 2012 it is 0.34 and 2013 it is Decrease it is 0.355 and in 2014 it is 0.38 . In Tata

Motors Return on equity is in year 2009-2010 is 14.38 and its increase in year 2011 it is30.06 it’s

more increase in this year and in 2012 it is52.25 and 2013 it is Increase and it is 58.98 and in

2014 it is increase and it is 101.90.

Table: 4 Operating Profit Ratio:

Operating Profit Ratio

Year Ashok


Hindustan

Motors Tata Motors

2009-2010 90.59 86.42 83.11 84.84 90.69

2010-2011 90.52 82.88 87.22 85.54 85.56

2011-2012 75.66 75.81 74.76 87 70.94

2012-2013 76.11 73.89 73.82 88 77.38

2013-2014 77.24 112.99 72.6 106.2 66.14

Above table: 4 Show that Operating Profit Ratio in different company for year 2009- 2010

to2013-2014. In Ashok Leyland Company is in year 2009-2010 to2013-2014. In Ashok Leyland

company Operating profit is in year 2009-2010 is 90.59% and it’s in year 2011 it is 90.52% and

in 2012 it is decrease and it is 75.66% and in 2013 it is 76.66% and 2014 it is 77.24%. In Bajaj

company Operating profit is in year 2009-2010 is 86.42% and its decrease in year 2011 it is

82.88% and in 2012 it is also Decrease at 75.81% and 2013 it is also Decrease and it is 73.89%

and in 2014 it increase at 112.99%. In this year it is more increase. In Hero Honda company

Operating Profit is in year 2009-2010 is 83.11% and it’s in year 2011 it is increase 8 7.22 and




in 2012 it is 74.76% and 2013 it is Decrease and it is 73.82% and in 2014 it is also Decrease at

72.60%. In Hindustan Motors Ltd company Operating profit ratio is in year 2009-2010 is 84.8%

it is in year 2011 it is 85.54% it’s in 2012 it is 0.87% and 2013 it is Increase it is 88% and in

2014 it is 106.2%. In Tata Motors ) Operating Profit ratio is in year 2009-2010 is 90.69% and its

Decrease in year 2011 it is85.56% it’s again Decrease in this year and in 2012 it is 70.94% and

2013 it is Increase and it is 77.38% and in 2014 it is Decrease and it is 66.14%.

Sales Variables:

Table: 5 Inventory Turnover:

Inventory Turnover

Year Ashok


Hindustan

Motors Tata Motors

2009-2010 5 2 10 7 8

2010-2011 5 3 4 6 8

2011-2012 4 3 3 6 7

2012-2013 4 2 3 9 7

2013-2014 5 2 3 3 6

Above table: 5 Chart Show That Inventory Turnover Ratio of Selected company for year 2009-

2010 to2013-2014. In Ashok Leyland Company is in year 2009-2010 to2013-2014. In Ashok

Leyland Company Inventory Turnover is same in 2010,201 and 2014 it is 5 times in each year.

And 2012 and 2013 it is same and it is 4 times inventory turnover. In Bajaj company Inventory

Turnover is in year 2009-2010 is 23 times and its more increase in year 2011 and 2012 and it is

same in both year it is 25 times. And is less in year 2014 and it is 20 times. It is 24 times in year

2013. In Hero Honda company Inventory turnover is more than in year 2009-2010 it is 101

times and in year 2014 it is Decrease and it is 27 times. In 2012 it is 29 times and 2013 it is 27

time in year. In Hindustan Motors Ltd company Inventory turnover ratio is in year 2010 and

2011 it is same and its turnover is 6 times for each year. In year 2013 it is more to compare with

other year and it is 8 times inventory turnover. And in 2014 it is very less and turnover is only 2

times .In Tata Motors Inventory turnovers in year2010 and 2011 are same and it is 8 times

turnover. And in 2012 and 2013 turnover is also same and it is 7 times in each year. And less

turnover is in year 2014 and it is 6 times.

Table: 6 Debtors Turnover Ratio




Debtors Turnover

Year Ashok


Hindustan

Motors Tata Motors

2009-2010 7.95 43.96 129.92 51.38 15.94

2010-2011 10.96 58.48 179.92 57.89 18.11

2011-2012 11.4 50.66 124.22 32.37 23.12

2012-2013 10.03 34.64 54.35 43.68 8.9

2013-2014

7.77 49.94 34.06 11.65 21.98

Ta

Above table:6 Show Debtors Turnover Ratio In Selected Indian Auto Mobile Company. In

Ashok Leyland Company Year 2012 Debtors Turnover Ratio Is more than other years and it is

11.40 and less ratio is in year 2014 it is 7.77. And in year 2011 it is 10.96. And in 2010 it is

7.95. And it is 10.03 in year 2013. In Bajaj Company in Year 2011 Debtors Turnover Ratio Is

more than other years and it is 58.58 and less ratio is in year 2013 it is 34.64. And in year 2010

it is 43.96. And in 2012 it is 50.66. And it is 49.94 in year 2014. Hero Honda Company in

Year 2011 Debtors Turnover Ratio Is more than other years and it is 179.92 and less ratio is in

year 2014 it is 34.06. And in year 2010 it is 129.92. And in 2012 it is 124.22. And it is 54.35

in year 2013. Hindustan Motors Ltd in Year 2011 Debtors Turnover Ratio Is more than other

years and it is 57.89. And less ratio is in year 2014 it is 11.65. And in year 2010 it is 51.38.

And in 2012 it is 32.37. And it is 43.68 in year 2013. Tata Motors in Year 2012 Debtors

Turnover Ratio Is more Than other years and it is 23.12. And less ratio is in year 2013 it is 8.9.

And in year 2010 it is 15.94. And in 2011 it is 18.11. And it is 21.98 in year 2014.

Table: 7 Current Ratio:

Current Ratio

Year Ashok


Hindustan

Motors Tata Motors

2009-2010 1.3981 0.707 0.59 0.755 1.01

2010-2011 1.23 0.73 0.25 0.82 1.08

2011-2012 0.88 1.12 1.11 0.4955 0.879

2012-2013 0.81 1.5 1.22 0.44 0.48




Above table: 7 Chart Show Current ratio In Selected Indian Auto Mobile Company. In Ashok

Leyland Company Year 2010 Current ratio is more than other years and it is 1.3981 and less

ratio is in year 2013 it is 0.81. And in year 2011 it is 1.23. And in 2012 it is 0.88. And it is 0.84

in year 2014. In Bajaj Company in Year 2013 Current Ratio Is more than other years and it is

1.50 and less ratio is in year 2010 it is 0.707. And in year 2011 it is 0.73. And in 2012 it is 1.12.

And it is 1.03 in year 2014. Hero Honda Company in Year 2014 Current ratio Is more than other

years and it is 1.25and less ratio is in year 2011 it is 0.25. And in year 2010 it is 0.59. And in

2012 it is 1.11. And it is 1.22 in year 2013. Hindustan Motors Ltd in Year 2011 Current Ratio Is

more than other years and it is 0.82. And less ratio is in year 2013 it is 0.44. And in year 2010 it

is 0.755. And in 2012 it is 0.4955. And it is 0.58 in year 2014. Tata Motors in Year 2011 Current

Ratio Is more Than other years and it is 1.08. And less ratio is in year 2013 it is 0.48. And in year

2010 it is 1.01. And in 2012 it is 0.879. And it is 1.03 in year 2014.

Table: 8 Quick Ratio:

Quick Ratio

Year Ashok


Hindustan

Motors Tata Motors

2009-2010 0.844 0.6 0.51 0.43 0.748

2010-2011 0.61 0.59 0.16 0.39 0.786

2011-2012 0.43 0.97 0.96 0.27 0.63

2012-2013 0.45 1.13 1.06 0.15 0.27

2013-2014 0.58 0.9 1.1 0.51 0.74

Above table: 8 Show Quick ratio In Selected Indian Auto Mobile Company. In Ashok Leyland

Company Year 2010 Current ratio is more than other years and it is 0.844 and less ratio is in year

2012 it is 0.43. And in year 2011 it is 0.61. And in 2013 it is 0.45. And it is 0.58 in year 2014. In

Bajaj Company in Year 2013 Quick Ratio Is more than other years and it is 1.13 and less ratio is

in year 2011 it is 0.59. And in year 2010 it is 0.60. And in 2012 it is 0.97. And it is 0.90 in year

2014. Hero Honda Company in Year 2014 Quick ratio is more than other years and it is 1.10and

less ratio is in year 2011 it is 0.16. And in year 2010 it is 0.51. And in 2012 it is 0.96. And it is

1.06 in year 2013. Hindustan Motors Ltd in Year 2014 Quick Ratio is more than other years

and it is 051. And less ratio is in year 2013 it is 0.15. And in year 2010 it is 0.43. And in 2011

it is 0.39. And it is 0.27 in year 2012. Tata Motors in Year 2011 Quick Ratio Is more than other

2013-2014 0.84 1.03 1.25 0.58 1.03




years and it is 0.786. And less ratio is in year 2013 it is 0.27. And in year 2010 it is 0.748. And in

2012 it is 0.63. And it is 0.74 in year 2014.

Table: 9 Leverage Ratio:

Leverage Ratio

Year Ashok

Leyland

Bajaj Hero Honda Hindustan

Motors

Tata Motors

2009-2010 0.34 0.33 0.018 0.31 0.775

2010-2011 0.36 0.06 0.006 0.54 0.603

2011-2012 0.2 0.0087 0.11 0.35 0.26

2012-2013 0.26 0.0057 0.14 0.27 0.27

2013-2014 0.3 0.64 0.16 0.099 0.25

Above table: 9 shows Leverage ratio In Selected Indian Auto Mobile Company. In Ashok

Leyland Company Year 2011 Current ratio is more than other years and it is 0.36 and less ratio is

in year 2012 it is 0.20. And in year 2010 it is 0.34. And in 2013 it is 0.26. And it is 0.30 in year

2014. In Bajaj Company in Year 2014 leverage Ratio Is more than other years and it is 0.64

and less ratio is in year 2013 it is 0.0057. And in year 2010 it is 0.33. And in 2012 it is 0.06. And

it is 0.0087 in year 2014. Hero Honda Company in Year 2014 Leverage ratio Is more than other

years and it is 0.16 and less ratio is in year 2011 it is 0.006. And in year 2010 it is 0.018. And in

2012 it is 0.11. And it is 0.14 in year 2013. Hindustan Motors Ltd in Year 2011 Leverage Ratio

Is more than other years and it is 0.54. And less ratio is in year 2014 it is 0.099. And in year

2010 it is 0.31. And in 2012 it is 0.35. And it is 0.27 in year 2013. Tata Motors in Year 2010

Leverage Ratio Is more than other years and it is 0.775. And less ratio is in year 2014 it is 0.25.

And in year 2011 it is 0.603. And in 2012 it is 0.26. And it is 0.27 in year 2013.

❖ Correlation Results:

The study uses Pearson’s correlation analysis to check the association between CCC

Components and firm’s performance. The below table shows the results of correlation coefficient

between the Dependent Variable and Independent Variables.

Table: 10 Result of Correlation for Ashok Leyland

Ashok Leyland

ROA ROE EBIT ACRP ACIP APP CCC

ROA 1

ROE 0.032869 1

EBIT -0.1346 0.982663 1




ACRP -0.80335 0.509846 0.641675 1

ACIP 0.341926 0.018542 -0.05397 -0.04511 1

APP 0.476658 -0.70146 -0.73631 -0.68896 0.284073 1

CCC -0.48846 0.705162 0.742494 0.707439 -0.26586 -0.99957 1

Table:10 Shows That the Correlation Coefficient between ROA and ACRP is -0.80335 and ROA

and APP is 0.476658. That shows the firm with lower Collection period will tent to exhibit high

profitability. The Correlation Coefficient between ROA and ACIP is 0.341926 is less than 0.5 it

is significant. The Correlation Coefficient between ROA and ROE is positive it is 0.032869 and

Relationship between ROA and CCC is -0.48846.and low CCC also shoes negative .and ROA

and EBIT is -0.1346.Relationship between ROE and EBIT, ACRP and ACIP is

0.982663,0.509846 and 0.018542 remaining, it is positive. And EBIT with ACRP is 0.641675 it

is positive. EBIT with ACIP and APP is negative it is -.0.05397 and -0.73631.and lower

collection period shows higher profitability. And Relationship between EBIT and CCC is

positive it means CCC is higher and it shows liquidity. And Relationship between ARP and APP

is negative it means collection period and payment period is less and it shows profitability. And

CCC is 0.707439 it is positive but it is not related firms profitability. But ACIP and CCC is -

0.26586 it shows profitability. Relation between ACIP and APP is 0.284073. And relationship

between APP and CCC is -0.99957.It means large firms enjoy more profitability. CCC shows

a negative relationship that indicates the firms can increase the profitability and whose inventory

conversion period is low will enjoy high profitability.

Table: 11 Result of Correlation for Bajaj

Bajaj


ROA 1

ROE -0.90138 1

EBIT -0.66993 0.913618 1

ACRP -0.82521 0.982102 0.967178 1

ACIP -0.61888 0.794078 0.817915 0.776629 1

APP -0.9168 0.767483 0.57104 0.691207 0.656068 1

CCC 0.592418 -0.26137 -0.00405 -0.14254 -0.27284 -0.8138 1

Table: 11 shows correlation coefficient between ROA and ROE , EBIT ,ACRP ,ACIP and APP

is negative and which are following remaining here it is -0.90138 ,-.66993 ,-0.82521 ,- 0.61888, -

0.9168. and only CCC variables is positive it is 0.592418.it is not related profitability. Because




negative relation indicates firm profitability, and less conversion period and inventory period is

related with profitability. Correlation coefficient between ROE and EBIT, ACRP, ACIP and APP

is positive. And it is not indicates with firms profitability. And relation between EBIT and

ACRP, ACIP, and APP is also positive it is not indicates with firms profitability But CCC is -

0.26137 it shows less conversion period it shows profitability. Relation between ACRP and

ACIP and APP is also positive. But CCC is -0.14254 it shows profitability. And ACIP with APP

is 0.656068 it is positive but CCC is -0.27284 it shows profitability and APP with CCC is -

0.8138 it is negative it shows profitability of firms. In Bajaj auto mobile industry shows less

profitability relationship with its variables. In this study most of the variables like ROE with

ACRP, ACIP , APP and EBIT with ACRP, ACIP, APP and ACRP with ACIP , APP and ACIP

with APP is positive and low this variables shows profitability but in case this variables are not

low. And only ROA with ROE , EBIT, ACRP, ACIP and ROE With and CCC EBIT with

CCC and ACRP with CCC and ACIP with CCC and APP with CCC is negative and low period

shows profitability.

Table: 12 Result of Correlation for Hero Honda

Hero Honda


ROA 1

ROE -0.86032 1

EBIT 0.948669 -0.9433 1

ACRP -0.71101 0.733485 -0.7139 1

ACIP -0.87652 0.666494 -0.70376 0.557121 1

APP 0.71489 -0.77056 0.876594 -0.50323 -0.30174 1

CCC -0.7949 0.838746 -0.93035 0.645708 0.408824 -0.98404 1

Table: 12 shows correlation coefficient between ROA and ROE , ,ACRP , ACIP and CCC is

relation indicates firm profitability negative and which are following remaining here it is -

0.86032 ,-0.71101 ,-0.87652 ,-07949. And only two variables are positive it is EBIT and APP. it

is not related profitability. and less conversion period and inventory period is related with

profitability. Correlation coefficient between ROE and ACRP, ACIP and CCC is positive. And it

is not indicates with firms profitability. And relation between EBIT and ACRP it is -.7139 and

ACIP it is -0.70376 and CCC it is -0.93035 and all are negative it’s indicate firms profitability.

Relation between ACRP with ACIP and CCC is positive it shows liquidity. Relation between

ACRP and APP is also positive it is 0.645708. Relationship with ACIP and APP is -0.30174 it is

negative it shows profitability of firms. And ACIP with CCC is 0.408824 it is positive. And in




last relationship with APP and CCC is -0.98404 it shows profitability. In Hero Honda Auto

mobile industry shows less profitability relationship with its variables. In this correlation

coefficient variables like ROA with ROE , ACRP, ACIP, and CCC this variables are negative

and ROE with EBIT and APP only two variables are negative and ACRP, ACIP and CCC is

positive and it’s not shows profitability. And EBIT with ACRP, ACIP and CCC is negative and

ACRP with only APP is negative and ACIP with APP and APP with CCC is negative it means

less this variables shows profitability of firms

Table: 13 Result of Correlation for Hindustan Motors

Hindustan Motors


ROA 1

ROE 0.578485 1

EBIT -0.71147 -0.49183 1

ACRP -0.78656 -0.19817 0.888509 1

ACIP -0.81777 -0.32948 0.930669 0.989333 1

APP -0.87837 -0.68625 0.930356 0.847645 0.912843 1

CCC 0.874114 0.721754 -0.91951 -0.82001 -0.89127 -0.99874 1

Table: 13 shows correlation coefficient between ROA and EBIT, ACRP ACIP and APP is

relation indicates firm profitability with negative result and which are following remaining here

it is -0.71147, -0.78656, -0.81777 and -.087837 and less this variables shows profitability of

firms. And only two variables are positive it is ROE and CCC it is ROE 0.578485 and CCC is

0.874114. It is not related profitability and less conversion period and inventory period is related

with profitability. Correlation coefficient between ROE and EBIT, ACRP, ACIP and APP is

negative and it shows firm profitability. And Only CCC variables are positive at 0.721754 .And

it is not indicates with firm’s profitability. And relation between EBIT with ACRP, ACIP, and

APP it is 0.888509 , 0.930669 and 0.930356 it’s all are positive .and all variables take more time

and it is not profitable for firms and CCC it is -0.91951 and it is negative it’s indicate firms

profitability. Relation between ACRP with ACIP and APP is positive it shows liquidity. Relation

between ACRP and CCC is negative it is - 0.82001 and less CCC is related profitability.

Relationship with ACIP and CCC is -0.89127 it is negative it shows profitability of firms. And

ACIP with APP is 0.912843 it is positive. And in last relationship with APP and CCC is -

0.99874 it shows profitability. In this study most variables shows profitability in variables like

CCC, APP, ACIP, ACRP, EBIT with ROA and ROE. It shows profitability of firms And EBIT,

ACIP, APP with ACRP, ACIP, APP it shows positive variables and it shows this variables taken




more time and it is not use for profitability.

Table: 14 Result of Correlation for Tata Motors:

Tata Motors


ROA 1

ROE -0.76816 1

EBIT 0.829988 -0.92141 1

ACRP 0.911179 -0.83349 0.797505 1

ACIP -0.75253 0.616399 -0.62541 -0.50029 1

APP -0.9581 0.91883 -0.92136 -0.92576 0.752436 1

CCC 0.958095 -0.91933 0.920853 0.931754 -0.74161 -0.99985 1

Table: 14 Shows That the Correlation Coefficient between ROA and ROE is -0.76816 it shows

negative relationship. And ROA with EBIT and ACRP and ROA with ACIP and CCC is

negative that indicates the firms can increase the profitability. and whose inventory conversion

,average payment period and receivable period is low will enjoy high profitability. And ROE

with EBIT is negative and ROE with ACRP and CCC also negative it is profitable. And

relation between ROE and ACIP and APP is positive at 0.616399 and 0.91883. And relation

between EBIT and ACIP is -0.62541 and APP is -0.92576 it shows profitability of firms. And

EBIT with ACRP and CCC is positive. And Correlation Coefficient between ACRP with ACIP

is -0.50029 and APP is -0.92576. and ACRP and CCC is positive at 0.931754 relation between

ACIP with APP is 0.7522436 and ACIP with CCC is -0.74161.and relationship with APP and

CCC is -0.99985 and less this variables shows higher profitability of the firm. In this study CCC

with only three variables are shows profitability and which are ROE and ACIP and APP. And

APP with ROA, EBIT, ACRP are negative variables.

❖ Liquidity Position

Table: 15 Liquidity Position of Ashok Leyland:

Liquidity Position Of Ashok Leyland

YEAR Current

Assets

Liquid

Assets

Current

Liability

Working

Capital Increase/Decrease

2009-2010 413968.43 250144.43 296075.72 117892.71 -

2010-2011 436724.53 215834.19 352827.4 83897.13 -137822.49

2011-2012 430388.63 207326.11 484313.99 -53925.36 -29971.77




2012-2013 429653.24 240051.16 529609.77 -99956.53 -46031.17

2013-2014 385543.5 266673.19 458660.2 -73116.7 26839.83

Above Table: 15 shows Current Assets , Current Liability ,Liquid Assets and Working capital for

Ashok Leyland company in year 2011-2012, 2012-2013 and 2013-2014 current liability is more

than its current assets and in this year it shows liquidity. And this shows negative working

capital.

Table: 16 Liquidity Position of Bajaj:

Liquidity Position Of Bajaj

Year Current

Assets

Liquid

Assets

Current

Liability

Working

Capital Increase/Decreases

2009-2010 30284.1 25700.2 42812.8 -12528.7 -

2010-2011 2905.4 2329.15 3966.91 -1061.51 -11467.19

2011-2012 5190.15 4511.62 4625.16 564.99 1626.5

2012-2013 6198.08 5561.8 4133.63 2064.45 1499.46

2013-2014 10294.11 8997.04 9981.56 312.55 -1751.9

Above Table: 16 shows Current assets, Current Liability, Liquid Assets and Working capital for

Bajaj company in year 209-2010 and 2010-2011 current liability is more than its current assets

and in this year it shows liquidity. And this shows negative working capital.

Table 17 Liquidity Position of Hero Honda:

Liquidity Position of Hero Honda

YEAR Current

Assets

Liquid

Assets

Current

Liability

Working

Capital

Increase/

Decrease

2009-2010 2882.58 2446.18 4831.41 1948.83 -

2010-2011 1504.57 979.64 6144.75 4640.18 -2691.35

2011-2012 4830.96 4155.39 4341.44 489.52 5129.7

2012-2013 5077.61 4440.85 4170.68 906.93 417.41

2013-2014 5558.28 4888.73 4423.62 1104.66 197.73


Towards Excellence: An Indexed Refereed Journal of Higher Education / Ms. Ruchi Joshi / Page 85-102


Above Table: 17 shows Current Assets, Current Liability, Liquid Assets and Working capital for Hero

Honda company in year 209-2010 and 2010-2011 current liability is more than its current asset and in

this year it shows liquidity. And this shows negative working capital.

Table: 18 Liquidity Position of Hindustan Motors Ltd

Above Table:18 shows Current Assets , Current Liability ,Liquid Assets and Working capital for Hindustan

Motors company in year 2009-2010 ,2010-2011, 2011-2012 , 2012-2013 and 2013-2014 current liability is

more than its current assets and in this year it shows liquidity. And this shows negative working capital.

Table: 19 Liquidity Positions of Tata Motors:

Above Table: 19 shows Current Assets , Current Liability ,Liquid Assets and Working capital for

Tata Motors company in year 2011-2012 and 2012-2013 current liability is more than its current

assets and in this year it shows liquidity. And this shows negative working capital.

Liquidity Position of Hindustan Motors Ltd

YEAR Current

Assets

Liquid

Assets

Current

Liability

Working

Capital

Increase/

Decrease

2009-2010 17094.18 9731.95 22628.68 -5534.5 -

2010-2011 18966.02 9027.26 23127.77 -4161.75 1372.75

2011-2012 13426.45 7241.88 27091.82 -13665.37 17827.12

2012-2013 12282.6 4146.05 27756.36 -15473.76 -1808.39

2013-2014 12294.47 10776.85 21098.5 -8804.03 6669.73

Liquidity Position of Tata Motors Ltd

YEAR Current

Assets

Liquid

Assets

Current

Liability

Working

Capital

Increase/

Decrease

2009-2010 42529.64 41720.83 808.81 -

2010-2011 51034.92 46983.82 4051.1 3242.29

2011-2012 64461.47 73268.07 -8806.4 -12857.7

2012-2013 10134.96 21104.61 -10969.65 -2163.05

2013-2014 95845.33 92356.13

92356.13

92356.13

3489.2 14458.85



DEC, 2015. VOL.7. ISSUE NO. 2 www.ascgujarat.org Page | 101 9

Conclusion:

This study investigates the impact of WCM on firms‟ performance for Automobile industry. Panel

data have been analyzed by applying Pearson correlation for the time period of 2010 to 2014 that

represents the mean values of CCC. The finding indicates that slow collection of receivables is

correlated with low profitability. The found negative relationship between accounts receivables

days and profitability. These results suggest that managers can create value for their shareholders

by reducing the number of days for accounts receivables. In addition, the negative relationship

suggests that less profitable firms will pursue a decrease of their accounts receivables in an

attempt to reduce their cash gap in the CCC.

Managers can improve profitability by reducing the credit period granted to their customers. The

probable reasons are keeping inventory for a long time, being slow in collecting receivables, and

paying debts quickly. This paper contributes to the literature in several ways. First, successful

management of WCM management is value enhancing to shareholders. Secondly, this evidence

suggests that investors do care about firms‟ daily operations and understand how working capital

efficiency is translated into future earnings and profitability. And in correlation between some of

the dependent and independent variables have negative relation and collection period, inventory

turnover period and payment period time gape is high and it shows negative relationship between

variables so managers will try to cover this time and make the working capital management in

better position. In this study most of the variables earn profitability and ratio analyses is selected

Automobile industry is give satisfactory result. Findings ratio shows some are favorable and some

are not favorable so try to maintain this ratio. Try to control Debtors ratio, leverage ratio

because it shows liquidity. And try to increase profitability ratio and increase Return on assets and

Equity and operating profit Ratio and try to maintain Current Assets and Current Liability and

increase firm’s profitability.



DEC, 2015. VOL.7. ISSUE NO. 2 www.ascgujarat.org Page | 102 9

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Ruchi S. Joshi

Research Scholar

E-Mail: [email protected]


mailto:[email protected]

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Towards Excellence: An Indexed, Refereed & Peer Reviewed