Analysis on the management of working capital in selected Indian Pharmaceutical companies

Abstract

The effective management of working capital is critical for sustaining operational efficiency and financial health, particularly in capital-intensive sectors such as the pharmaceutical industry. This study aims to analyze the working capital management practices of selected Indian pharmaceutical companies, focusing on their approaches to liquidity, inventory management, and debtor collection. The pharmaceutical sector, characterized by high research and development (R&D) costs, long product development cycles, and stringent regulatory requirements, faces unique challenges in balancing liquidity with profitability. The analysis explores key components of working capital—such as cash, accounts receivable, inventory, and accounts payable and their interrelations, emphasizing how pharmaceutical companies optimize cash flow while meeting operational demands. Through financial ratios like the current ratio, quick ratio, inventory turnover ratio, and receivables turnover ratio, the study evaluates the efficiency of these companies in managing their short-term liabilities and assets. This research highlights the need for strategic working capital management as a tool to enhance operational efficiency, reduce financial risks, and support the sustainable growth of Indian pharmaceutical companies. Further, the study underscores the importance of dynamic policies that adapt to changing market conditions and regulatory environments, particularly in a rapidly evolving industry like pharmaceuticals.