Relationship between Working Capital Management and Profitability of the Real Estate Sector in India: Evidence from Panel Data Analysis

Authors

  • Dr. Kanika Sachdeva   Assistant Professor, EMPI Business School, New Delhi, India

Keywords:

Working Capital Management, Profitability, Panel Data, National Stock Exchange, Real Estate Sector

Abstract

Woking capital represents the amount of capital used by the businesses in its day to day activities to meet the short term obligation. Administering it is considered as one of the most crucial element of business management especially in a capital intensive sector. This attracts the attention towards exploring the working capital of real estate sector as most of the funds of these companies are invested in current assets and they take more time to get converted into cash. This paper examines the relationship between working capital management and profitability of 10 real estate companies representing the Nifty Realty Index (NSE) for the period 2007-2018. Earnings before interest and tax is considered as dependent variable for measuring the profitability and current ratio, quick ratio, debtor turnover ratio, inventory turnover ratio, creditor turnover ratio, working capital turnover ratio, cash sales to total sales, current asset to total assets, current liability to total asset, size of company are considered as independent variables for assessing the working capital management. In order to establish the statistical relationship the study employed correlation and balanced panel data technique, the results were estimated using fixed effect and random effect models. Estimates of random effect model were considered for the analysis based on hausman test statistics. The results shows that current ratio, quick ratio, creditor turnover ratio, working capital turnover ratio, cash sales to total sales, current liability to total asset, and size of company are found to have significant impact on profitability of the selected companies. Creditor turnover ratio and cash to total sales are found to have significant positive impact of profitability. The study also revealed that the profitability of the firm decreases with increase in liquid assets. Hence, the results for the study recommends that companies should manage their short term finances efficiently to make sure a sound bottom line for the real estate companies.

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International Journal of Scientific Research in Science, Engineering and Technology

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Published

2020-10-18

Issue

Volume 5, Issue 11, October-2020

Section

Research Articles

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How to Cite

[1]
Dr. Kanika Sachdeva "Relationship between Working Capital Management and Profitability of the Real Estate Sector in India: Evidence from Panel Data Analysis" International Journal of Scientific Research in Science, Engineering and Technology (IJSRSET), Print ISSN : 2395-1990, Online ISSN : 2394-4099, Volume 5, Issue 11, pp.47-57, October-2020.