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Working Capital Management A Case Study Of The Fertilizer Industry In India

Inventory comprises an important part of current assets, particularly in manufacturing concerns. Huge funds are committed to inventories so as to ensure smooth flow of production and to meet consumer demand. However, maintaining inventory also involves holding or carrying costs along with opportunity cost. Inventory management, therefore, plays a crucial role in balancing the benefits and disadvantages associated with holding inventory. Efficient and effective inventory management goes a long way in successful running and survival of a business firm. With this backdrop, the present study focuses on empirically analysing inventory management in the fertiliser industry by taking a sample of 10 companies for a period of 10 years from 2001–2002 to 2010–2011. The study examines the effect of inventory performance on profitability of the firm. It also investigates the impact of gross margin, capital intensity, firm’s size and growth on inventory performance. The variables used include inventory turnover ratio, average inventory conversion period, current ratio, size of firm, gross margin, fixed financial assets ratio, financial debt ratio and growth of firm. The results provide a strong negative relationship of average inventory conversion period with profitability of the company. Also, inventory turnover is inversely related to gross margin while directly related to capital intensity, firm’s size and growth.

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