Implications of Working Capital

Financial Management basically deals with raising of financial resources and its proper allocation in order to maximize shareholders wealth. For a successful running of an organization fixed and current assets play a crucial role as organization generally invests in these options. A firm’s working capital consists of its investments in short-term assets like cash and bank balance, inventories, receivable and short term investments. Therefore, the working capital management mainly refers to the management of all these individual current assets. In this research paper an attempt has been made to study the components of working capital and the possible implications of working capital management policies on profitability of ONGC Limited. The paper also attempts to analyze the correlation between liquidity, profitability and return on investments of ONGC. The study is based on secondary data collected from annual reports of ONGC for the period 2000 to 2012. In this paper there is an application of correlation and regression analysis to identify the significant impact of Working capital management on the profitability. Working capital Management is essential as it might have a direct impact on profitability and liquidity.

Keywords: Working capital management, ONGC, Current Assets, Profitability & Liquidity

Introduction:

Financial Management in an organization mainly focuses on the taking long-term financial decisions, capital budgeting decisions, capital structure, dividends or company valuation decisions. However, management of current assets and liabilities are equally important for an organization and need to be carefully analyzed. The finance manager is constantly engaged in policies to maintain a sound working capital position. Working Capital is an important part of Finance and has an impact on the liquidity of an organization. Working capital Management is crucial to the liquidity position of businesses of all sizes. Excess Working capital leads to...