A Study on Working Capital Management of Indian Pharmaceutical Industry

Abstract

Pharmaceutical industry is one such sector where companies are mostly reliable on its R&D operations to remain competitive in the market. To continuously develop and innovate new drugs and technologies, they are required to have a huge amount of investment in capital building. Thus studying and managing the working capital is of utmost importance to bring competitive edge and profitability in Pharmaceutical firms. The challenge here is to bring a balance between liquidity parameters and profitability of a company. The scope of this study is to identify the parameters which define working capital and study their impact on profitability of a company. Some of the identified parameters are inventory conversion period, operating cycle and cash cycle and liquidity ratios. For the same, a case study is done on Cadila Healthcare Ltd. and various hypotheses are formulated to develop a relationship between profitability and components of its working capital. Correlation and Regression analysis are carried out to study the significance and degree of relationship of each variable with the profitability. Further, top three companies belonging to different market capitalisations are selected and are compared on the basis of different variables of profitability and working capital. A sample data for a period of five years (2014 – 2019) is collected and the analysis is done using descriptive statistics. Based on this analysis, major positive and negative points of these companies are identified and relevant recommendations are put up. The findings of this study is a potential basis for future research works in the pharmaceutical industry pertaining to this domain.