Modelling working capital management for Indian fast moving consumer goods firms

Abstract

The purpose of this study is to investigate the effects of working capital management on profitability measured in terms of return on investment of Indian FMCG firms. Working capital management is an imperative issue in financial management decision which has its effect on liquidity as well as on profitability of the firm. The sample size is restricted to 18 Indian FMCG firms and the secondary data for analysis is retrieved from CMIE for ten years period from 2001–2002 to 2010–2011. Apart from using descriptive statistics and Pearson’s correlation analysis, panel data regression analysis like fixed effects model (FEM) and random effects model (REM) are employed in the study. Hausman test is also used to make a choice between these two models. Like previous authors, our study results demonstrate a negative relationship between the measures of working capital management with firms’ profitability.