Impact of working capital management on firm's profitability & liquidity: An empirical study of Coal India Ltd (CIL)

Abstract

The efficient management of working capital plays a crucial role in the successful functioning of a firm. Firm should always keep monitoring the liquidity position as it projects the company’s credit image. Lack of liquidity can create a bad image among the parties interested in the firms functioning. Also firm must ensure that there should be a proper balance between current assets and current liabilities, as it can affect the profitability of the firm. For making the analysis of Liquidity-profitability relationship of CIL, ratio analysis techniques of Financial Management have been used. By observation of this it can be seen that even though the liquidity position was not strong, the profitability position of CIL is not up to the desired level. The short term solvency position of the firm must be strengthened so that it is able to meet its obligations timely. These things facilitate the maximization of the wealth of the firm. From this study it can be concluded that there is no significant difference in the profitability & liquidity position of the company because it has been seen that the liquidity position was strong were as the profitability position was not satisfactory. The risk factor of the firm is high as compared to profitability. The total risk of the firm is also high as compared to the ROCE, which was not worthwhile for the future prospects of the firm. it must generate higher returns from its existing assets of the firm.