Page 1 of 11
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 02
February 2019
Available online: https://ejbss.org/ P a g e | 850
Working Capital Management Efficiency of DPSUs(GRSE&HAL)
in India
Dr B N Mandal
Assistant Professor& HOD (Commerce)
Nims University,Rajasthan,Jaipur
The amount of working capital components vary from organization to organization depending upon
the operating cycle. The Working Capital Management efficiency is measured in terms of Working
Capital Period (WCP) in days. The WCP is based on the amount in each of equally weighted
receivable, inventory and accounts payable. The WCP represents the lead period between purchase of
material from supplier till realization of money and payment against purchases to the vendor.
The company’s financial performance measure (Profitability) is measured using the EBDIT (Earnings
before depreciation, interest and tax) related to Total Assets (TA). This measure indicates the earning
power of the company assets (EBDIT/TA) i.e. Net operating profit to Total Assets (NOPA).
Another measure is used for financial performance (Profitability) analysis that is EBDIT (Earnings
.before depreciation, interest and tax) related to Sales i.e EBDIT/Sales i.e Net operating profit to
Sales(NOPS). This represents the profit margin secured on sales.
To measure the financial performance-Liquidity of the firm, Cash flow from operations)/Sales (CCE)
and Current Ratio (CR) are applied. The CCE represents the cash flow comes from operating
activities related to the sales.
The formulae for calculating the values are given in the following table.
Table – 1.1
Capital Ratio Definitions
Working Capital Ratios Abbreviatio
n
Formula
Average collection period ACP Receivables/(Sales/365)
Inventory holding period ITIO Inventories/(Sales/365)
Average Payment period APP Payables/(Sales/365)
Working Capital period WCP ACP + ITIO - APP
Current Ratio CR Current Assets /Current Liabilities
Cash conversion efficiency CCE (Cash flow from operations)/Sales
Net operating profit to Total Assets NOPA (EBDIT)/Total Assets
Net operating profit to Sales NOPS ((EBDIT)/Sales
Source: Management Accounting defined Ratios
Page 2 of 11
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 02
February 2019
Available online: https://ejbss.org/ P a g e | 851
Deriving statistical evidence to conform to the association between the Working Capital Management
efficiency (WCP) and Financial Performance (Liquidity & Profitability), Correlation analysis among
WCP, ACP, ITIO, CCE, NOPA, NOPS and CR are undertaken to obtain the statistical evidence
through Pearson Correlation coefficients. Statistical evidence is derived to find out the approaches of
Working Capital Management (WCM) that Indian DPSUs use to increase profitability and liquidity.
Classical Analysis of Variance – ANOVA-F test is done to prove the same. The data for the measure
of WCM, profitability and liquidity, are collected from the Annual Reports containing financial
statements of the select DPSUs over the period from 2002-03 to 2011-12.The publicly available
financial information is collected from the Public Enterprise Survey of the Government of India, as
well as the annual reports of DPSUs. For each DPSU, descriptive statistics for the components of
working capital management efficiency for the DPSUs have been presented. The working capital
variables are (i) ACP is the average collection period (ii) ITIO is the Inventories turnover per year in
terms of days of holding of inventories, (iii) APP is the days of payable Period, WCP is the working
capital period, CCE is the cash flow from operation to sales, NOPA is the EBDTA to Total Assets
ratio, NOPS is the EBDTA to Sales ratio, and CR is the current ratio.
1.4.2 Working Capital Management: An Analysis of individual DPSUs
After understanding the basics of the Working Capital Management, it is required to analyze the
Working Capital Management of the DPSUs one after another and also the DPSUs put together which
will give the practical aspect of such companies as given below:
1.4.2.1 GRSE:
Based on the definitions cited, a ten years data of the GRSE comprising the years from 2002-03 to
2011-12 has been taken into consideration and the relevant ratios have been calculated and presented
in the following table.
Page 3 of 11
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 02
February 2019
Available online: https://ejbss.org/ P a g e | 852
Table – 1.2
Working Capital Management and Financial performance measures of GRSE
Particulars\years 2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
2011-
Receivables/(Sales/365) 12
(ACP)
71 55 32 17 17 61 48 92 97 33
Inventories/(Sales/365)
(ITIO)
3625 1464 511 299 372 551 416 1332 1568 936
Payables/(Sales/365)
(APP)
5811 2150 876 635 1018 1330 1023 2171 2019 1191
ACP+ITIO-APP
(WCP)
-2115 -632 -333 -318 -630 -717 -559 -748 -354 -221
Current Assets/Current
Liabilities (CR)
1.09 1.10 1.11 1.16 1.14 1.16 1.15 1.12 1.12 1.10
(Cash flow from
operations)/Sales (CCE)
4.84 1.47 0.87 0.93 1.67 1.71 1.03 1.11 0.35 0.53
EBDIT/Total Assets
(NOPA)
0.02 0.02 0.02 0.05 0.08 0.05 0.04 0.04 0.05 0.04
(EBDIT)/Sales (NOPS) 0.35 0.14 0.06 0.11 0.26 0.22 0.13 0.29 0.33 0.14
Source: Statistics based on data of Annual Reports of GRSE
To summarize the data, the descriptive statistics has been used. The commonly used measures of
Central Tendency (Mean& Median) and the measures of Variability (Standard deviation) have been
ascertained as given in the following table.
Table – 1.3
Descriptive Statistics: WCM and financial performance measures of GRSE
ACP ITIO APP WCP CCE NOPA NOPS CR
Mean 52 1107 1822 -663 1.45 0.04 0.20 1.12
Median 51 744 1260 -594 1.07 0.04 0.18 1.12
SD 28.41 1005.28 1505.79 542.58 1.27 0.02 0.10 0.02
Source: Statistics based on data of Annual Reports of GRSE
The higher standard deviation for APP of 1505.79 days indicates a wide variation in APP (Average
Payable period) in GRSE. Further the standard deviation for WCP is also 542.58 days which indicates
a wide variation in days of working capital (WCP). However the ACP median is 51 days which is
nearer to the mean of 52 days indicates that the company is managing the sales outstanding days well.
Large differences in the ITIO median and deviation indicate that the company has not managed well
its inventory and this is a contributor for increased deviation of WCP.
Association of WCM efficiency and financial performance:
The descriptive statistics show the working capital measure. The correlation analysis is done to
analyze the association between the working capital management efficiency with financial
