IMR JAN 2013 - Indira Institutes

Impact Of Working Capital Management On Firmsneed for financing and less cost of capital, which in turn, increases the availability of cash forshareholders (Ganesan, 2007). This suggests that reducing working capital investment is likelyto lead to higher profits. In this study, I will try to find out the impact of working capitalmanagement on profitability (measured through ROTA) for the Indian Steel Industry for theperiod from 2007-2011 to understand this relationship.2. THEORETICAL BACKGROUNDThe study and the related literature on working capital management and steel industry wouldhelp in building understanding about the working capital management in steel industry in Indiaand also the studies that have been done previously to understand the relationship betweenprofitability and working capital management. This will help to understand how similar ordifferent the present study is as compared to them.a)Steel Industry in IndiaIndia is among the top producers of all forms of steel in the world. Easy availability of low costmanpower and presence of abundant reserves make India competitive in the global setup.According to a March 2012 report on Iron and steel Industry in India by Corporate Catalyst India,India's consumption of stainless steel is much higher at 14 percent, compared to globalconsumption of 6 percent in the last 15 years.The following graph shows the production and consumption pattern in India from 2005-06 to2010-2011. It is estimated that the world steel consumption will double in next 25 years. Qualityimprovement of Indian steel combined with its low cost advantages will definitely help insubstantial gain in export market.In the past, India has been importing around 1.5 million tonnes annually. Advance LicensingScheme allows duty free import of raw materials for exports.Source: Corporate Catalyst India, March 2012Indira Management Review - Jan 2013 05