Working Capital Management of Nepalese Manufacturing Companies

Pathak, Khem Raj

Working Capital Management of Nepalese Manufacturing Companies

Publisher

Department of Management

Abstract

Working Capital management are the most secured and liquid financial assets available, which can accelerate manufacturing lending to various sectors. Similarly, manufacturing plays an important role in economic development of country. Working Capital management serves as the main source of funds for manufacturing intermediation activities which can simply classified as Liquidity Ratio, Activity Turnover Ratio, Profitability Ratio and Cash Conversion Cycle manufacturing Companies. The study is based on secondary data of 3 manufacturing Companies for the period of 2013/14 to 2018/19. Data and information have been collected from Nepal Stock Exchange (NSE) and annual reports of the selected manufacturing Companies. The research design adopted in this study is descriptive and causal comparative research design as it deals with the Working Capital Management of Nepalese manufacturing Company. This study attempts to examine the Working Capital Management of Nepalese manufacturing Companies. The descriptive statistics for Manufacturing Companies shows that the current ratio and quick ratio of all selected companies has below the industry average rate 2:1 and 1:1 respectively. Highest average current assets turnover ratio, an average inventory turnover ratio, receivable turnover ratio and cash and bank turnover ratio than other sample companies. It indicates that HDL has efficiently utilized its assets to concert into sales. The turnover ratio shows HDL has highest average current assets turnover ratio, an average inventory turnover ratio, receivable turnover ratio and cash and bank turnover ratio than other sample companies. It indicates that HDL has efficiently utilized its assets to concert into sales. The profitability ratio shows UNL highest level of return on assets i.e. 43% and net profit margin 23%. The result shows UNL is doing better in operation generating profit with available assets than other sample companies. The outcome of cash conversion cycle shows DNL has highest level of CCC followed by UNL and HDL has negative CCC. Longer CCC indicates greater need for external financing thereby increases the cost of financing too resulting in lower profitability. The negative CCC seems to be very satisfactory for short period but in long period, it will deteriorate the credit worthiness of the companies. The correlation of UNL shows there is a negative relationship between ROA with NP margin, CR, RCP and PCP and positive relationship between ROA with RCP, CCC, sales growth and AG. It indicates that CCC has a positive significant impact on return on assets and xii bigger the firm size the annual growth of sales, higher the firm profitability and vice versa. Similarly, correlation analysis of DNL shows a positive relationship between ROA with NP margin, RCP, ICP and CCC, and negative correlation with CR, PCP, SG and AG. As we know that positive correlation means both of the variables are moving towards the same directions and vice versa The correlation analysis of HDL shows there is a negative correlation between ROA with RCP, PCP, and AG and positive correlation between ROA with cash conversion cycle, sales growth. It indicates that increase in CCC and sales growth will increase in company's profitability and vice versa Manufacturing Companies.