IMPACT OF WORKING CAPITAL MANAGEMENT PRACTICES ON THE FINANCIAL PERFORMANCE OF INDIAN HIGHER MID-CAP PHARMACEUTICAL COMPANIES

Abstract

This study examines the working capital management (WCM) practices of higher mid-cap pharmaceutical companies in India and assesses their impact on financial performance, specifically Return on Assets (ROA). Using secondary data sourced from the CMIE Prowess IQ database, the research analyzes a panel of 26 Higher mid-cap pharmaceutical firms listed on the Bombay Stock Exchange (BSE) over a ten-year period from 2013–14 to 2022–23. Key components of WCM—such as raw material turnover, WIP turnover, finished goods turnover, debtors’ turnover, creditors’ turnover, and the current ratio—were considered as independent variables. Control variables including sales, sales growth, and debt-to-equity ratio were incorporated to account for firm-level financial characteristics. The study employs multiple regression analysis to evaluate the extent to which these variables influence ROA.

Descriptive and inferential statistical results reveal significant variability in WCM practices among the firms, with high dispersion in receivables, inventory turnover, and growth indicators. Although the regression model is statistically significant (p < 0.001), it explains only 15.1% of the variation in ROA, indicating that WCM practices alone do not fully determine financial performance. The findings suggest that while efficient working capital management contributes to operational efficiency, other strategic and external factors also play a vital role. The study underscores the need for customized WCM strategies and calls for future research incorporating qualitative variables and advanced econometric models to enhance understanding of profitability drivers in the pharmaceutical sector.