• Punam Prasad
• Narayanasamy Sivasankaran

Purpose: The extant literature measures the impact of working capital efficiency on the profitability of firms using accounting measures such as ROA, ROCE, ROE, Gross Operating Income (GOI) and market measure of Tobin’s Q. All these measures establish an indirect approach to study the association of working capital efficiency with the profitability of the firms. This paper establishes a direct relationship by introducing ‘Return on Net Working Capital’ (RONWC) as a new profitability measure of working capital management. Furthermore, an empirical test is conducted using the non-financial Indian firms and results are encouraging. Design/methodology/approach:This paper investigates the relation between working capital efficiency and the profitability of the firms in the Indian context during the period 2011 to 2016 using panel regression model. Findings:The study finds the existence of a significant negative relationship between return on net working capital (RONWC) and net trade cycle (NTC). Relationship between net trade cycle and conventional profitability measures like return on assets, return on equity, return on capital employed, gross operating income and Tobin’s Q were also tested and found to be statistically insignificant. Regarding control variables, return on net working capital increases with firm size, age of the firm, operating cash flow, sales growth and leverage and the relationship between RONWC and the control variables were found to be significant as well. Practical implications:This study contributes by aiding managers in measuring the impact of the investment in working capital on the profitability of their firms in a direct manner using return on net working capital. Originality/value:The present study proposes Return on Net working Capital (RONWC) as a direct profitability measure of working capital efficiency to academia and practitioners.

Working capital management; Working capital efficiency; Return on net working capital; Profitability; Net trade cycle

"RETURN ON NET WORKING CAPITAL (RONWC): A DIRECT OUTCOME MEASURE OF WORKING CAPITAL EFFICIENCY OF FIRMS", International Journal of Emerging Technologies and Innovative Research (www.jetir.org), ISSN:2349-5162, Vol.5, Issue 8, page no.678-691, August-2018, Available :http://www.jetir.org/papers/JETIRA006122.pdf

"RETURN ON NET WORKING CAPITAL (RONWC): A DIRECT OUTCOME MEASURE OF WORKING CAPITAL EFFICIENCY OF FIRMS", International Journal of Emerging Technologies and Innovative Research (www.jetir.org | UGC and issn Approved), ISSN:2349-5162, Vol.5, Issue 8, page no. pp678-691, August-2018, Available at : http://www.jetir.org/papers/JETIRA006122.pdf