Impact of Working Capital Management Practices on Liquidity of a Firm: Perfomance of Calundike Exports Pvt Ltd (2016-2019)

Abstract

The study was established in order to investigate the impact of working capital management practices on the liquidity of Calundike Exports a wood furniture manufacturing firm. The analysis of the company’s working capital components has led to the establishment of the research gap for the study. It was established that lack of proper trade receivables management, poor trade payables system and inadequate inventory management has affected the liquidity position for Calundike Exports negatively for the period of 2016 to 2019.A mixed research method was done on a sample of 18 members from the finance department that had unlimited access to most of the information. The working capital components used for the study were trade receivables (RCC), trade payable (PCC), Inventory cycle (ICC) and cash cycle (CCC) and return on asset (ROA) was used as the variable of financial performance. The relationship between the working capital components and financial performance was established using the Pearson correlation and regression analysis. The results of the study highlighted that that efficient working capital management ensures liquidity by monitoring of account receivables, account payable, stock management and debt management, it is able to create a good relationship with suppliers which fosters a good reputation within the industry and that production disruptions are reduced hence the positive impact of effective working capital management practices. When payments are due the company should by all means possible try to owner their obligations in order to maintain and improve its good reputation within the industry. Management should also put frameworks across all section such frameworks include proper inventory management framework like economic order quantity or JIT. A credit framework should be established whereby it states the clear conditions of customers that can be granted credit and if bridged the conditions and terms should also be highlighted.