Abstract - A Case Study on Working Capital Management

A Case Study on the Working Capital Management of Trent Limited and its Impact on Operating Profit

ABSTRACT

Traditionally, investment in Working Capital has been viewed by businesses as an essentiality for day-to-day operations. With the changing times, increasingly complex managerial objectives and strive for invention of better financial management practices, the area of Liquidity Management is also the one being researched rigorously. The extensive research in the area in the last few decades, could only prove the fact that investment in working capital by a business is not just an administrative task, instead an important strategic decision – involving and impacting almost every function of the business.

Considering the research gaps in the area, this study hopes to contribute to the ongoing discussion on how an efficient and thought-through working capital management can positively influence the operating profit, and thereby the shareholders’ wealth. This paper attempts to establish that, investment in Working Capital is also an investment in assets, which in turn can become additional profit centers.

A case study method of research has been adapted to get the required outputs using real world inputs. The study is based on the secondary data of the published financial statements of Trent Limited, and other top firms in the domestic retail sector. Retail sector has been chosen to be studied for three reasons, one, India, as an economy would be expecting more FDI in this sector in the coming future, thanks to the second phase of economic reforms; two, retail is one sector, where working capital plays a major role due to the structure of retail business model; and three, these are times of acid test for domestic retail firms owing to increasing challenges & threats and thinning down margins.

The analysis is done using three approaches to get varied perspectives of quantitative outputs, as enumerated below:

1.     Common-size, comparative and trend-lined working capital statements, along with few basic statistical measures

2.     Ratio Analysis, and benchmarking with industry

3.     Correlation analysis (with test at appropriate level of significance), establishing relation between working capital and ratios acting as independent variables considering working capital as a dependant variable

Key Words: Working Capital Management, Liquidity Management, Retail, Trent Limited

JEL Codes: G30, G31, G39