The status of working capital and its relationship with sales

Abstract

PurposeThe purpose of this paper is to analyze the status of gross and net working capital and their association with sales of Andhra Pradesh Paper Mills Ltd, with reference to the Indian paper industry over a decade, from 1999 to 2008.Design/methodology/approachThe research is mainly based on secondary financial data obtained from the Centre for Monitoring Indian Economy (CMIE). It focused on the size, character, and annual growth rates of gross and net working capital of the company. In addition, it analyzed the growth trends of gross and net working capital of the company in relation to sales. With the help of the Karl Pearson's correlation model, the inter‐relationship between sales and working capital has been identified. Then the strength and significance of such a relationship has been tested with the use of other statistical tools such as coefficient of determination and Student's t‐test.FindingsThe major findings of the research showed that while there was an increase in sales positively, strongly, and significantly associated with an increase in gross working capital for both the company and the industry, its association with net working capital was negative, poorly related, weak, and insignificant for the company under study.Originality/valueThere is a dearth of studies in the world literature that discuss the relationship that exists between sales and working capital in India's paper industry, in general and Andhra Pradesh Paper Mills Ltd in particular, and therefore this research is expected to add significant value to exploring the said linkage.