The Impact of Working Capital Management on Financial Performance: An Empirical Analysis of the Automotive Components Industry in West Bengal
Keywords:
RoA, DIO, DSO, DPO, Multicollinearity, Regression Analysis, WCMAbstract
Working Capital Management (WCM) is one of the major tools for analysing the effectiveness of the firm. Different factors are included in the studies of WCM, but three factors that affect the WCM most are the inventories, accounts receivable, and accounts payable. These three are being analysed in terms of DIO (Days’ Inventory Outstanding), DSO (Days’ Sales Outstanding), and DPO (Days’ Payable Outstanding). The study focuses on the MSMEs that are operating in the automobile component manufacturing segment for the period of 2011 to 2021.
The method of sampling that was used was a purposive sample, and it consisted of 11 companies and 129 observations that were collected throughout 2011 to 2021 from the automotive component sub-sectors. The technique of analysis that was carried out was called panel data regression, and it made use of the Common Effect Model. According to the findings of this research, the ROA is significantly impacted negatively by both the DIO and the DPO, although the DSO has an impact in the other direction. When developing the most effective procedures for capital budgeting, it is advised that companies also take into consideration working capital management. The conclusions of this article might be helpful to managers of companies in optimising their WCM methods and practices.
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