Management Of Working Capital: A Case Study Of Micro And Small Enterprises In Chittoor District Of Andhra Pradesh
European Journal of Molecular & Clinical Medicine,
2020, Volume 7, Issue 3, Pages 5893-5917
AbstractIn spite of the significance of MSMEs as an important sub-sector of Industries, towards the contribution of GDP, income and employment generation, poverty alleviation, development of traditional art and culture, their efficient management has not received sufficient attention, in developing economies, particularly in India. There is a dearth of research at a district level; the researchers have not paid adequate attention towards the studies that have aimed at an analysis of efficient management of working capital in MSMEs, at district level. Keeping this research gap in view, the present study was conducted keeping the different components of working capital in view, which provides an answer to the problem of trade-off between liquidity and profitability of these enterprises.
In India too, the 633.88 lakh MSMEs are found operating in rural and urban areas, providing employment to 1109.8 lakh persons and contributing 28.9 per cent to the GDP. However, the recent studies revealed that the working capital gap for MSMEs has been widening particularly in short term borrowings, inventory and receivables to the extent of 13 to 16 per cent. RBI has also observed that credit to MSMEs registered a negative growth rate during the last fiscal year. Hence, it is inevitable to assess and analyze to what extent MSMEs in India are managing different components of working capital efficiently.
Being influenced by the necessity, the present paper makes an attempt to analyze the trends and to what extent the working capital and its components are managed efficiently at district level, upon which much attention was not paid.
A field survey was conducted in Chittoor district of Andhra Pradesh, to collect primary data from 100 micro and small enterprises representing agro-food and allied based, textile based and mineral based categories of enterprises. Necessary data was collected for a period of 6 years. I.e. from 2011-12 to 2016-17. Besides the analysis of current assets and liabilities, the study attempts to analyze the results with statistical techniques like Two-way ANOVA and Karl Pearson’s Correlation Coefficient. Relevant hypotheses were formulated and tested with the help of these techniques.
It is found in the analysis that the agro-food and allied based enterprises have focused on total current assets rather than on current liabilities, keeping them at less than 50.0 per cent of the total liabilities. The textile-based enterprises have high proportion of trade receivables and maintained an ideal proportion of inventories. They could manage trade payables top the minimum extent. The mineral based enterprises attached greater importance to maintain total current assets at high level compared to total current liabilities, with a cautious preference.
The ANOVA results made it clear that there exist significant variances in current assets, current liabilities as well as net working capital of the enterprises among three categories of sample enterprises and during the reference period also. The correlation coefficients explained that there was a perfect positive correlation between current assets and liabilities, quick assets and current liabilities. However, an insignificant positive correlation was found between net working capital and value of sales of the enterprises. To conclude, the sample enterprises were found managing the working capital efficiently and it is suggested that they have to pay a cautious attention to cash conversion cycle, receivables, trade payables as well as short term borrowings to improve the efficiency further.
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