Does liquidity affect profitability in FMCG sector in India?

Abstract

Every organization whether public or private, profit oriented or not, irrespective of its size and nature of business, needs adequate amount of working capital. The efficient working capital management is most crucial factor in maintaining survival, liquidity, solvency and profitability of any business organization. A company needs sufficient finance to carry out purchase of raw materials, payment of day-to-day operational expenses and funds to meet these expenses are collectively known as working capital. An attempt has been made in this paper to find out the working capital management and its impact on liquidity and profitability of selected companies in FMCG sector in India. The sample for the study is 15 companies which are part of NSE CNX FMCG index over the period of eleven years from 2004-05 to 2014-15. The result indicated that there is weak negative correlation between liquidity and profitability of the industry. The correlation between CR and ROA and ROCA was found to be negative while it was positive with NPM. Contrary to it, DTR and TATR was positively correlated with ROA and ROCE and they had a negative correlation with NPM. In the correlation matrix highest positive correlation is found between ROA and ROCE because both moves in same direction. Further, findings reveal that, there is no significant impact of CR, ITR and DTR on ROCE of the company.