Working Capital Management in Indian Steel Industry

Abstract

Working capital management is a very significant decision aspect of every business entity as it facilitates smooth functioning, revenue generation, and efficient asset utilization. In this context, the current study examined the structure of current assets, working capital policy comprising of current asset investment, financing, inventory policy, credit policy, and working capital leverage of the Indian Steel Industry over a period of 12 years from 2000-01 to 2011-12. Further, the impact of working capital leverage on Return on Total Assets is also examined. The analysis revealed that the asset structure of the steel industry is liquid with a higher proportion of current assets. Receivables comprised of the major component in the current asset structure. The results of the regression analysis revealed that the industry is pursuing a conservative current asset investment and aggressive current asset financing policy over the study period. A significant downtrend was observed for CR and QR indicating deterioration of liquidity position in the Indian Steel industry.

Keywords: Indian Steel Industry, Working Capital, Working Capital Leverage, Profitability, Liquidity

JEL Classification: G31, G32