March – April 2020

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A Study on Working Capital Management with

Special Reference to Select Pharmaceutical
Companies in India
Dr. N. Kanimozhi, Assistant Professor in Commerce, Padmavani Arts and Science college for women, Salem-11. .
Dr. S.Karthik, Associate Professor in Commerce, Kalasalingam Academy of Research and Education, Krishnankoil,
Virudhunagar – 626126.
S.Umamaheswari, Assistant Professor, Department of Commerce with CA, SNMV College of Arts and Science,
Coimbatore

Article Info Abstract:

Volume 83 Working capital is a vital measure to assess a company's fitness Some time
Page Number: 9517 - 9524 profitable companies can turn insolvent if they fail to manage working capital properly.
Publication Issue: Working capital determines the sources which are need for running the business smoothly. It
March - April 2020 inferred that short term liquidity position of a company at a point of time. The researcher
analyzed various ratios such as current ratio, quick ratio, debtors’ turnover ratio, stock
Article History turnover ratio etc., The study period covers about ten year from 2010 to 2020. The researcher
ArticleReceived: 24 July 2019 has taken ten pharmaceutical companies as sample size for analysis. The results show that the
Revised: 12 September 2019 working capital managed by selected company throughout the period is good and sufficient.
Accepted: 15 February 2020
Publication: 11 April 2020 Keywords: Working Capital Management, Pharmaceutical Industry, Current Assets.

I. INTRODUCTION
Those receipts and payments which is used Pharmaceutical Industry in India
for running business less than one year it is called India is the largest provider in generic
working capital. That is difference between drugs globally. Indian pharmaceutical sector
current assets and current liabilities. Cureent industry provisions over fifty percent of global
assets refer to closing stock, amount not yet demand for various vaccines, forty percent of
received from customer on credit and cash generic demand in this US and twenty five percent
available within hand and at bank. On the other of all medicines in UK.
part of side current liabilities refers to short term India has dominant position in
debt, goods purchased from creditors on credit, pharmaceutical sector globally. The country also
outstanding dues and bank overdraft and other has large pool of engineers and scientists who
short term debts. have possible to push this industry in high level in
The result of working capital of a company upcoming year also.
should be positive. If the company with negative II. REVIEW OF LITERATURE
working capital i.e current liabilities excess of Pavithra.K, S.Karthik, and S.
current asset are leveled to financial risk and Umamaheswari (2016) 1 have titled on
should be carefully analyzed. The few factors comparative study on working capital
which is influencing working capital requirement management in India. Data are used for the study
like nature and size of business, seasonal secondary in nature. Ten pharmaceutical
variations in sales, change input and length of companies are selected as sample from 2009-10 to
cycle etc., 2019-20. It is inferred from their study all selected
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companies are managed working capital Working Capital Management is life blood
effectively and efficiently throughout the study of any organization. Working capital positions are
period and it is satisfactory. good measure to test whether a company will be
Mobeen Ur Rehman and Naveed Anjum able to comfortably continue as a going concern.
2
(2013) empirically analyzed the effects of Working capital should be maintained for smooth
working capital management on the profitability running of the business given optimal amounts of
of Pakistan cement industry. The secondary data cash, accounts receivable and inventories that a
are used from Annual report and the sample size is firm should choose to maintain.
10 consisting of Pakistan cement companies listed
in KSE from 2003-2008. The relationship between IV. OBJECTIVES OF THE STUDY
working capital management and profitability was ❖ To study the working capital policy of the
analyzed by selected statistical tools. There is select pharmaceutical companies in india.
positive relationship between working capital ❖ To analyze the position of working capital
management and profitability of selected cement among the selected pharmaceutical
industry in Pakistan. companies.
Kulkanya Napompech (2012)3 examined ❖ To offer suggestion and conclusion of the
the impact of working capital management on study.
profitability. The main objective of this study is to
test the effects of working capital management on V. RESEARCH METHODOLOGY
profitability. The regression analysis was Research Design
calculated on a sample of 255 companies listed in The research study is analytical in nature.
the Stock Exchange of Thailand from 2007 to It has been used for analyzing the working capital
2009. Therefore, There is an inverse relationship of the pharmaceutical company. In this study, the
between the operating profit and inventory researcher has used secondary data which availed
conversion period and the receivable collection in Centre for Monitoring Indian Economy
period. However, there were no effects on (CMIE).
profitability by extending the payables deferral
period. The findings also confirmed that industry Selection of Sample
characteristics have an impact on gross operating The ten pharmaceutical companies have
profits. been selected for the study for the period of ten
Manoj Anand and Kesev (2011)4 have years and the period starts from 2010 to 2020
entitled on Working capital performance of based on high sales turnover. Based on the criteria
corporate India. The researcher has selected and listed companies were listed below;
analysed top 25 companies during the period C1 - Dr. Reddy’s Laboratories C6 –
2003-2004. The study concluded that there is Cadilla Healthcare
relationships between the working capital C2 - Cipla Ltd C7 –
management and firm profitability on an Jubilant Life Sciences
aggregate basis and have a significant negative C3 - Lupin Ltd C8 -
relationship between the cash flow from operating Glaxo Smith Kline Pharmaceutical
activities and average days of account variable. C4 – Aurobindo Pharma C9 –
Davis Laboratories
III. STATEMENT OF THE PROBLEM

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C5 – Sun Pharmaceuticals C10 Tools of Analysis

– Glenmark Pharma Following tools are applied for the study:
➢ Ratio analysis
➢ Anova
Period of Study ➢ Mean
The period of study ten years from 2010- ➢ Standard Deviation
11 to 2019-20. The financial year starts from 1st ➢ Co- efficient of Variation
April 2010 to 31st March 2020.
VI. ANALYSIS AND INTERPRETATION

Table. 1 Current Assets to Total Assets Ratio

YEAR C1 C2 C3 C4 C5 C6 C7 C8 C9 C10
2010-11 0.47 0.97 0.78 0.64 0.41 0.46 1.69 1.51 0.71 0.74
2011-12 0.49 1.00 0.72 0.61 0.6 0.47 1.72 1.6 0.77 0.81
2012-13 0.56 0.93 0.84 0.65 0.7 0.54 1.75 1.47 0.72 0.81
2013-14 0.58 0.84 0.84 0.6 0.7 0.62 2.93 0.4 0.62 0.77
2014-15 0.55 0.87 0.76 0.68 0.65 0.55 2.78 0.89 0.6 0.73
2015-16 0.61 0.79 0.78 0.76 0.53 0.49 2.84 1.19 0.6 0.93
2016-17 0.51 0.73 0.67 0.69 0.28 0.53 2.37 1.26 0.52 0.61
2017-18 0.61 0.61 0.58 0.68 0.43 0.56 2.7 1.16 0.54 0.15
2018-19 0.56 0.55 0.62 0.68 0.39 0.55 2.41 1.13 0.56 0.27
2019-20 0.73 0.47 0.67 0.69 0.37 0.51 2.13 1.14 0.56 0.33
Mean 0.56 0.78 0.72 0.66 0.5 0.52 2.33 1.18 0.62 0.61
SD 0.07 0.18 0.09 0.05 0.15 0.04 0.48 0.34 0.08 0.26
CV (%) 12.74 23.25 12.55 6.85 30.05 9.15 20.76 29.07 13.59 43.54
(SD- Standard deviation, CV – Co-efficient of Variation)
The above shows that mean value is found higher in Jubilant Life Sciences (C7) at 2.33 indicates that
the company has an excessive investment in current assets. The lower mean value is Sun Pharmaceuticals
(C5) at 0.50 shows that the company’s current asset maintenance is low. In Aurobindo Pharma (C4) the co-
efficient of variation is found with the high level of consistency and low level of consistency is noticed in
Glenmark Pharma (C10).

Table. 2 Current Asset to Net Fixed Assets Ratio

YEAR C1 C2 C3 C4 C5 C6 C7 C8 C9 C10
2010-11 2.17 2.62 1.25 1.92 1.3 0.67 0.86 6.09 1.27 1.88
2011-12 2.04 2.37 1.21 1.7 3.97 0.68 0.94 7.26 1.5 2.82
2012-13 3.16 2.17 2.05 1.9 4.21 0.92 1.18 5.19 1.65 3.37
2013-14 3.99 2.04 2.07 2.46 4.18 1.11 1.04 3.7 1.13 3.79
2014-15 2.91 2.25 2.00 2.46 4.45 1.25 1.19 6.94 1.17 3.09
2015-16 2.95 2.12 1.85 3 3.92 1.21 0.97 3.98 1.34 12.3
2016-17 2.53 2.16 1.94 2.58 2.14 1.25 1.21 4.61 1.41 8.07
2017-18 2.7 1.51 1.79 2.46 3.61 1.44 1.23 7.34 1.71 2.16
2018-19 2.45 1.4 1.77 2.05 3.2 1.64 1.01 7.43 1.73 3.29

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2019-20 2.85 1.39 1.86 1.96 2.59 1.54 0.97 5.66 1.61 3.77
Mean 2.77 2 1.77 2.24 3.35 1.17 1.06 5.81 1.45 4.45
SD 0.55 0.43 0.31 0.4 1.04 0.33 0.13 1.42 0.22 3.24
CV (%) 19.87 21.23 17.29 17.93 30.9 28.65 12.4 24.34 15.22 72.74
(SD- Standard deviation, CV – Co-efficient of Variation)
The table shows that mean value is higher in Glaxo Smith Kline Pharmaceuticals (C8) at 5.81. It
indicates more funds are locked up in the current asset which leads to reduction in profitability. The
Mean value is lower in Jubilant Life Sciences (C7) at 1.06. In Jubilant Life Sciences (C7) the co-
efficient of variation is found with the high level of consistency and low level of consistency is noticed
in Glenmark Pharma (C10).
Table. 3 Current Asset to Operating Income Ratio
Year C1 C2 C3 C4 C5 C6 C7 C8 C9 C10
2010-11 2.87 3.2 2.82 3.89 1.5 2.45 2.47 2.84 1.78 3.52
2011-12 7.05 3.01 4.62 8.14 4.77 2.44 2.76 2.22 2.23 4.97
2012-13 5.59 2.84 4.37 7.52 4.18 2.64 3.47 2.33 2.79 7.08
2013-14 2.05 3.07 3.07 6.3 3.54 3.18 3.08 0.69 1.66 4.49
2014-15 4.94 3.85 2.67 6.42 2.52 3.59 2.48 1.7 1.35 2.25
2015-16 4.71 3.82 3.11 5.06 2.02 4.06 2.54 2.68 1.54 5.9
2016-17 3.06 2.87 2.83 3.56 1.55 10.3 3.4 2.85 1.88 6.35
2017-18 3.74 3.06 2.48 3.43 1.89 5.95 4.17 4.05 1.89 1.35
2018-19 2.5 2.44 2.59 5.37 1.73 2.95 4.93 2.97 1.67 2.01
2019-20 3.42 2.02 1.96 4.11 3.93 3.27 4.66 3.46 1.68 2.32
Mean 3.99 3.01 3.05 5.37 2.76 4.08 3.39 2.57 1.84 4.02
SD 1.55 0.55 0.83 1.67 1.22 2.42 0.91 0.93 0.4 2.03
CV (%) 39 18.34 27.13 31.1 44.3 59.4 26.8 36.1 21.88 50.3
(SD- Standard deviation, CV – Co-efficient of Variation)
This table shows that mean value is higher in Aurobindo Pharma (C4) at 5.37. It indicates the
inefficiency usage of the funds. The lower mean value is Divis Laboratories (C9) at 1.84 shows efficient
utilization of funds. In Cipla Ltd (C2) co-efficient of variation is found high level and low level of
consistency is noticed in Cadila Healthcare (C6).
Table. 4 Net Working Capital to Operating Income Ratio
Year C1 C2 C3 C4 C5 C6 C7 C8 C9 C10
2010-11 1.84 2.37 1.96 2.98 1.14 0.76 1.05 2.39 1.34 2.68
2011-12 4.28 2.16 2.98 5.95 4.4 0.83 1.13 1.84 1.68 4.39
2012-13 3.62 2.05 3.37 5.43 3.87 1.26 2.05 2.01 1.88 6.17
2013-14 1.5 2.5 2.33 4.83 2.84 1.21 1.71 0.39 1.18 3.7
2014-15 3.59 2.96 1.99 4.83 1.87 2.04 1.58 1.37 0.98 1.72
2015-16 3.18 2.91 1.78 3.91 1.6 2.25 1.42 2.28 1.23 5.28
2016-17 1.64 2.21 2.08 2.61 1.3 5.7 1.96 2.45 1.51 5.56
2017-18 2.46 2.38 1.8 2.48 1.69 1.86 2.44 3.62 1.47 0.77
2018-19 1.68 1.91 1.87 3.5 1.48 1.64 2.24 2.6 1.29 1.13
2019-20 2.33 1.57 1.45 3.03 3.25 2.16 1.03 2.97 1.35 0.99
Mean 2.61 2.3 2.16 3.95 2.34 1.97 1.66 2.19 1.39 3.24

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SD 0.99 0.42 0.58 1.23 1.16 1.41 0.5 0.88 0.25 2.05
CV (%) 37.9 18.48 27.14 31.2 49.6 71.7 30.6 40.3 18.52 63.4
(SD- Standard deviation, CV – Co-efficient of Variation)
The above table shows that mean value of net working capital to operating ratio is higher in
Aurobindo Pharma (C4) at 3.95. It indicates an excessive that working capital and shows the inefficiency in
managing its utilization which increases the cost of financing net working capital. The lower mean value is
Divis Laboratories (C9) at 1.39, shows an efficient utilization of working capital. In Cipla Ltd (C2) co-
efficient of variation is found with the high level consistency and low level consistency is noticed in
Glenmark Pharma (C10).
Table. 5 Working Capital To Current Asset Ratio
YEAR C1 C2 C3 C4 C5 C6 C7 C8 C9 C10
2010-11 0.64 0.74 0.7 0.76 0.76 0.32 0.42 0.84 0.75 0.76
2011-12 0.61 0.72 0.64 0.73 0.92 0.34 0.41 0.83 0.75 0.88
2012-13 0.65 0.72 0.77 0.72 0.93 0.48 0.59 0.86 0.68 0.87
2013-14 0.73 0.81 0.76 0.77 0.8 0.38 0.55 0.56 0.71 0.82
2014-15 0.73 0.77 0.75 0.75 0.74 0.57 0.64 0.8 0.73 0.76
2015-16 0.67 0.76 0.57 0.77 0.79 0.55 0.56 0.85 0.79 0.89
2016-17 0.54 0.77 0.74 0.73 0.83 0.55 0.58 0.86 0.8 0.88
2017-18 0.66 0.78 0.73 0.72 0.89 0.56 0.59 0.89 0.78 0.57
2018-19 0.67 0.78 0.72 0.65 0.85 0.56 0.46 0.87 0.77 0.56
2019-20 0.68 0.77 0.74 0.74 0.83 0.66 0.22 0.86 0.79 0.43
Mean 0.66 0.76 0.71 0.74 0.84 0.5 0.52 0.82 0.76 0.74
SD 0.05 0.02 0.06 0.03 0.06 0.11 0.12 0.09 0.04 0.16
CV (%) 8.6 3.83 8.53 4.68 7.61 22.9 25 11.6 5.61 22.2
(SD- Standard deviation, CV – Co-efficient of Variation)

The table shows mean value is higher in Sun Source Sum of Degrees Mean F S/
Pharmaceuticals (C5) at 0.84. It indicates the of Square of sum Valu N
working capital position is good. The mean value Variatio s Freedo of e S
is lower in Cadila Healthcare (C6) at 0.50. In n m Squar
Cipla Ltd (C2) the co-efficient of variation is e
found with the high level consistency and low Between 15.40
level consistency is noticed in Cadila Healthcare 3.889 9 .432 S
Groups 1
(C6). Within
Table 6. Anova for Current Asset to Total 2.525 90 .028
Groups
Asset Ratio
Hypothesis Total 6.414 99
There is no significant mean difference in (1 % level of significance) (S – Significant, NS – Not
current asset to total asset ratio among the select Significant)
pharmaceutical companies. The calculated F value is 15.401, table
value at 1 % level of significance, when degrees
of freedom is 9,2.611. The calculated F value is

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more than the table value; hence the null Source Sum of Degrees Mean F S/
hypothesis is rejected. There is a significant mean of Square of sum Valu N
difference in current asset to total asset ratio Variatio s Freedo of e S
among the select pharmaceutical companies. n m Squar
e
Table 7. Anova for Current Assets to Net Between
Fixed Asset Ratio 88.824 9 9.869 5.047 S
Groups
Hypothesis Within 176.00
There is no significant mean difference in 90 1.956
Groups 5
current asset to net fixed asset ratio among the
264.82
select pharmaceutical companies. Total 99
9
(1 % level of significance)
Source Sum of Degree Mean F S (S – Significant, NS – Not Significant)
of Squares s of sum of Val /
Variati Freedo Square ue N The calculated F value is 15.401, table value at 1
on m S % level of significance, when the degrees of
Betwee freedom is 9, 2.611. The calculated F value is
11562.29 1284.6 N more than the table value; hence the null
n 9 .709
4 99 S hypothesis is rejected. There is a significant mean
Groups
Within 163058.4 1811.7 difference in current asset to operating income
90 ratio among the select pharmaceutical companies.
Groups 07 60
174620.7 Table 9. Anova for Net Working Capital to
Total 99 Operating Income Ratio
01
(5 % level of significance) (S – Significant, NS – Not Hypothesis
Significant) There is no significant mean difference in
The calculated F value is 0.709, table net working capital to operating income ratio
value at 5 % level of significance, when the among the select pharmaceutical companies.
degrees of freedom is 9, 1.986. The calculated F Source of Sum of Degrees Mean F S/
value is less than the table value; hence the null Variation Squares of sum of Value NS
Freedom Square
hypothesis is accepted. There is no significant
Between
mean difference in current asset to net fixed asset 50.223 9 5.580 4.773 S
Groups
ratio among the select pharmaceutical companies. Within
105.224 90 1.169
Groups
Table 8. Anova for Current Asset to Operating
Total 155.447 99
Income Ratio
Hypothesis (1 % level of significance) (S – Significant, NS – Not
There is no significant mean difference in Significant)
current asset to operating income ratio among the The calculated F value is 4.773, table
select pharmaceutical companies. value at 1 % level of significance, when the
degrees of freedom is 9, 2.611. The calculated F
value is more than the table value, hence the null
hypothesis rejected. There is a significant mean

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difference net working capital to operating income ➢ The pharmaceutical company must take
ratio among the select pharmaceutical companies. necessary steps to accelerate the collection
of money from debtors.
Table 10. Anova for Working Capital to
Current Asset Ratio VIII. CONCLUSION
Hypothesis The survival and growth of every business
There is no significant mean difference in based on the effective utilization of the working
working capital to current asset ratio among the capital. The management of working capital
select pharmaceutical companies. constitutes the major role of the overall financial
Source Sum of Degrees Mean F S/ management. Working capital management is also
of Square of sum Valu N important part of the Pharmaceutical Industry as it
Variatio s Freedo of e S has a direct impact on meeting day-to-day
n m Squar expenses. Based on the ratio analysis, it is inferred
e that “Jubilant Life Sciences, Sun
Pharmaceuticals”, has the better working capital
Between 17.61 managements. Further, it is observed that the total
1.266 9 .141 S
Groups 5 assets, fixed assets, sales and profit significantly
influence the working capital.
Within Reference
.719 90 .008
Groups [1] Pavithra.K, S. Karthik, S.Umamaheswari,”A
Total 1.985 99 Comparative Study on Working capital
Management of Asian Paints Ltd. And Berger
(1 % level of significance) (S – Paints Ltd. In India” International Journal of
Significant, NS – Not Significant) Multidisciplinary Educational Research, Vol-
The calculated F value is 17.615, table 6(3), P 549-553.
value at 1 % level of significance, when the [2] Mobeen Ur Rehman, NaveedAnjum, ,
degrees of freedom is 9, 2.611. The calculated F Determination of the Impact of Working
value is more than the table value; hence the null Capital Management on Profitability: An
hypothesis is rejected. There is a significant mean Empirical Study From The Cement Sector In
difference in working capital to current asset ratio Pakistan Asian Economic and Financial
Review, 3(3):319- 332.
among the select pharmaceutical companies.
[3] KulkanyaNapompech, , Effects of Working
Capital Management on the Profitability of
VII. SUGGESTIONS
Thai Listed Firms, International Journal of
➢ The pharmaceutical companies should Trade, Economics and Finance, Vol. 3, No. 3.
increase the sales to generate revenues. [4] ManojAnand and Kesev (2011) in the study,
➢ Investment in fixed assets and current “Working capital performance of corporate
assets should be effectively utilize and India “.Journal of Financial Management and
earn more profits. Analysis, vol.18, no.1, P 26-35.
➢ The pharmaceutical companies should [5] Saswata Chatterjee (2010), “Impact of
increase the current assets and decrease the Working Capital Management on the
current liabilities to improve short term Profitability of the listed companies in the
London Stock Exchange”.Journal of Business
solvency position.
Management, vol.3: P 68-75.

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Books
1. Financial Management – Sashi K.Gupta &
R.K.Sharma
2. Management Accounting – S.N.Maheswari
Website
www.moneycontrol.com

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