Working Capital Management of Makson Healthcare Pvt Ltd: A Trade -off between Liquidity and Profitability, an Empirical Study

By Rajdev, Ankita | Researchers World, July 2013 | Go to article overview

Working Capital Management of Makson Healthcare Pvt Ltd: A Trade -off between Liquidity and Profitability, an Empirical Study


Rajdev, Ankita, Researchers World


ABSTRACT

This paper makes an attempt to provide an insight into the conceptual side of working capital and to assess the impact of working capital management on liquidity, of Makson. Liquidity management is a prerequisite for the very survival of the concern. The short term creditors of the firm are primarily interested in knowing the firm's ability to meet its current and short term obligations. And so liquidity and profitability trade off have become a crucial issue among any organization. The paper analyses the association between the liquidity management and profitability of Makson Group.

For analyzing the performance of liquidity management, the management accounting technique ratio analysis is used. And statistical techniques like measures of central tendency, measures of dispersion, Pearson correlation, and Spearman's rank correlation have been used. The students't test has been applied to test the significance of rank correlation coefficient.

The findings suggest that the liquidity is managed mostly by owners past experience and data and hence, there is no significant correlation between liquidity and profitability is seen. The originality of the paper is that it conceptualises liquidity management in Makson group as a learning process.

Keywords: Working Capital, Liquidity, Profitability, Trade Off and Makson Healthcare Pvt Ltd.

(ProQuest: ... denotes formula omitted.)

INTRODUCTION:

Finance required to meet capital expenditure is known as Fixed Capital Finance where as finance required to meet day-to-day or operating business requirements is known as Working Capital Finance. Working Capital Management is a method of deployment of current assets and current liabilities efficiently so as to maximize short-term liquidity. It's a a financial metric which represents operating liquidity available to a firm Basically it is the difference between resources of the firm in cash or readily convertible into cash which is known as Current Assets and organizational commitments for which cash will soon be required known as Current Liabilities. The management of working capital involves managing all the current assets and current liability as inventories, accounts receivable and payable, and cash. Working Capital is also known as Revolving or Circulating Capital or Short-Term Capital.

The purpose of working capital management is to manage firm's liquidity so as to maintain efficient profitability. In most of the cases it's been seen that there is always a negative relationship between liquidity and profitability. Therefore, one is complementary to each other. Sound profitability increases the profit of the firm where liquidity helps maintaining the operation of the firm.

There are two concepts of working capital viz. Gross or Quantitative Concept: It means Current Assets. In this the concept is based on optimum investment and financing of current assets. Net or Qualitative Concept: It means difference between Currents Assets & Current Liabilities. In this the concept is based on Liquidity Position of the Firm.

Liquidity management is a prerequisite for the very survival of the concern. The short term creditors of the firm are primarily interested in knowing the firm's ability to meet its current and short term obligations. To eliminate the risk of the inability to meet the short- term obligation or on the other hand to avoid the excessive investment we need to efficiently involve in planning a controlling of current asset and current liabilities which is thus known as liquidity management .

A study of liquidity is of major importance to both the internal and the external analysts because of its close relationship with day-to-day operations of a business (Bhunia, 2010). Dilemma in liquidity management is to achieve desired tradeoff between liquidity and profitability (Raheman et al, 2007).

COMPANY PROFILE: MAKSON HEALTHCARE PRIVATE LIMITED:

In the year 1926 Makson Group started as a small manually operated in-house confectionery products manufacturing unit for local market. …

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