Optimal working capital management: balancing liquidity and profitability in financial management

Abstract

This paper offers a comprehensive examination of the significance of working capital management within the realm of financial management. This paper examines the significance of working capital in sustaining a corporation's operations and its role in facilitating business success. The research also underscores the differentiation between gross and net working capital, as well as the characteristics of working capital management, with a particular focus on the interconnectedness between current assets and liabilities. The study aims to evaluate the financial situation of Sugar firm and offer insights into its operational efficiency and long-term financial sustainability. The authors have also highlighted the necessity of conducting this study within the framework of India's economic situation following liberalization. The research methodology section elucidates the origins of primary and secondary data employed in the study, so offering transparency into the process of data collecting. The study provided an analysis of several financial ratios pertaining to liquidity, inventory turnover, holding period return, changes in stock, and debtor turnover. The authors have conducted a comprehensive analysis of the ratios throughout multiple years, providing significant insights into the financial performance of the Sugar company. The findings have brought attention to important aspects, including the company's dependence on short-term sources of finance and the substantial impact of inventory and various debtors on gross working capital. The analysis has also highlighted the company's adherence to acceptable current and quick ratios, fluctuations in the absolute liquid ratio, as well as swings in inventory turnover and debtor turnover ratios. The ideas section offers practical advice for the organization, encompassing the maintenance of existing working capital management processes, enhancement of inventory management, and effective management of cash flows. In conclusion, the significance of working capital management is succinctly summarized, with a particular emphasis on its pivotal role in enhancing business performance, fostering growth, and facilitating modernization. The study article presents a comprehensive examination of the working capital management of Sugar firm and offers significant insights for the company's financial decision-making.