Working Capital Management And Profitability : A Study on Nepal Telecom

Abstract

This study investigates the Working Capital Management and Profitability of Nepal Telecom. The major purposes of this study are; to analyze the liquidity position of Nepal Telecom, to analyze the working capital position of Nepal Telecom, to analyze the relationship between working capital and profitability and to determine the turnover ratios (i.e. Receivable Turnover, Inventory Turnover, Payable Turnover and Working Capital Turnover ratios) of Nepal Telecom. To meet these purposes of the study descriptive research design was used and the sample was collected by using the convenience sampling method. Nepal Telecom was selected as a sample for the study between the fiscal years 2066/67 to 2075/76. Data were obtained from the respective company‟s annual report. Data were analyzed using the correlation coefficient technique and regression analysis to examine the nature and extent of the relationship between the variables and determine whether any cause and effect relationship between them. Variables used were Average Collection Period, Current Ratio, Inventory Conversion Period, Payable Deferral Period, and Net Working Capital Turnover Ratio as the independent variable and Return on Assets as the dependent variable. The findings of the study show that there is a low degree positive correlation between ROA and Working Capital Turnover Ratio and a high degree of positive correlation between ROA and Average Collection Period. The study shows a low degree of negative correlation between Inventory Conversion Period, Current Ratio and ROA and a moderate degree of negative correlation between Return on Assets and Current Ratio, Inventory Conversion Period and Payable Deferral Period. From the analysis, it is revealed that NT has an excess amount of working capital in comparison to the revenue since the amount of working capital is exceeding net revenue this cannot be considered as the sign of efficient working capital management. The results of model summary shows that ACP, CR, ICP, PDP and NWCTR are responsible for change in return on assets of Nepal Telecom rest of change depends on other factors. It shows strong relationship between all independent variables and dependent variables. This means ACP, CR, ICP, PDP and NWCTR have significant impact in ROA of Nepal Telecom. Independent variables ACP, CR, ICP, PDP and NWCTR do not have significant results and shows that there is positive relationship between the independent and dependent variables.