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Modeling liquidity management for Indian FMCG firms

Bhaskar Bagchi (Department of Commerce, Alipurduar College, Jalpaiguri, West Bengal, India)
Jayanta Chakrabarti (Department of Commerce, Alipurduar College, Jalpaiguri, West Bengal, India)

International Journal of Commerce and Management

ISSN: 1056-9219

Article publication date: 28 October 2014

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Abstract

Purpose

The present study aims to investigate the impact of liquidity management on profitability of Indian Fast-Moving Consumer Goods (FMCG) firms, as well as the relationship among them, using econometric models.

Design/methodology/approach

Liquidity indices like current ratio, liquid ratio, absolute liquid ratio and cash conversion cycle are taken as explanatory variables, whereas age of creditors, age of debtors, age of inventory, sales and inter-temporal growth in sales are taken as control variables. Profitability is measured in terms of return on investment. The sample size is restricted to 18 Indian FMCG firms, and the secondary data for analysis are retrieved from Prowess Database of Centre for Monitoring Indian Economy for 10-year period from 2001-2002 to 2010-2011. Apart from using descriptive statistics and Pearson’s correlation analysis, panel data regression analysis like fixed-effects model and random effects model are used in the study. Hausman test is also used to make a choice between these two models.

Findings

The study results reveal a strong negative relationship between the measures of liquidity management and firms’ profitability, but firms’ size has a strong positive affiliation with profitability.

Research limitations/implications

The study has been constrained by the sample size and the nature of the data, which could have well affected the results.

Originality/value

This study has identified critical management practices which are expected to help out finance managers and practitioners in recognizing vital areas for improving the financial performance of their firm’s operation.

Keywords

Acknowledgements

The author is grateful to Dr. Basanta Khamrui, Assistant Professor, Department of Commerce, Gour Mohan Roy College, Monteswar, Burdwan, India, for his sincere cooperation in collection of data from CMIE. However, there is no funding source for this research.

Citation

Bagchi, B. and Chakrabarti, J. (2014), "Modeling liquidity management for Indian FMCG firms", International Journal of Commerce and Management, Vol. 24 No. 4, pp. 334-354. https://doi.org/10.1108/IJCoMA-10-2012-0065

Publisher

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Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited