Imperial Journal of Interdisciplinary Research (IJIR)

Vol-2, Issue-3 , 2016

ISSN : 2454-1362 , http://www.onlinejournal.in

Working Capital Management and Its

Impact on Profitability: A Case Study of
Bharti Airtel Telecom Company
Mrs. Poonam Gautam Sharma1 & Ms. Risham Preet Kaur2
1&2
Assistant Professor in Commerce, Dev Samaj College for Women, Ferozepur, India.

Abstract : The present paper examines the proportions of working capital. They are liquidity,
working capital performance of Bharti Airtel profitability and risk. In the present environment of
during the period 2007-08 to 2014-15. An attempt cut throat competition, business does not have any
has been made to measure the working capital other alternative, than cutting the cost of its
performance with the help of ratio analysis. operations in order to be competitive as well as
Statistical as well as econometric techniques are financially strong. It is in this connection that
employed in order to assess the behavior of the effective management of working capital plays a
selected ratios. Quick ratio, inventory turnover vital role.
ratio, Debtors turnover ratio, gross profit ratio,
operating profit ratio showed satisfactory In fact the relationship between working capital
performance and current ratio, of the company and profitability is still a debatable issue. There are
were not found to be satisfactory. Except 2012 and not many studies carried out in India on telecom
2014, working capital turnover ratio showed industry in connection with the relationship
negative results. The correlation coefficient between working capital and profitability in the
between liquidity and profitability of the selected recent past. An attempt has been made to evaluate
company is observed to be 0.08. Motaals test also the interrelationship between working capital
indicated significant improvement in liquidity management and profitability of Bharti Airtel
performance during the study period. Finally, there during the period 2007-08 to 2014-15.
exists significant negative relationship between
liquidity and profitability, which indicates that 2. Bharti Airtel: A brief profile
Bharti Airtel has maintained post optimal level of
liquidity (i.e., excess liquidity) during the period Bharti Airtel Limited was established on July
under study. 07,1995 as a Public Limited Company. It is a
leading global telecommunications company with
Keywords: Liquidity, Profitability, Working operations in 20 countries across Asia and Africa.
Capital Management, Current Ratio, Net Working It’s headquarter is at New Delhi, India. The
Capital, Risk ,ROCE, Risk-Return Trade Off . company ranks amongst the top 4 mobile service
providers globally in terms of subscribers. In India,
1. Introduction the company's product offerings include 2G, 3G
and 4G wireless services, mobile commerce, fixed
Working Capital Management is an important line services, high speed DSL broadband, IPTV,
component of Corporate Financial Management. It DTH, enterprise services including national &
is the relationship between current assets and international long distance services to carriers. In
current liabilities. Management of working capital the rest of the geographies, it offers 2G, 3G, 4G
is important to carry the routine activities of a firm. wireless services and mobile commerce. Bharti
The objective behind working capital management Airtel had nearly 340 million customers across its
is to ensure continuity in the operations of a firm operations at the end of Sep 2015.
and that it has sufficient funds to satisfy both
maturing short-term debt and upcoming operational 3. Literature review
expenses. It mainly involves management of
inventories, accounts receivables, accounts Several studies have been conducted regarding the
payables and cash. relationship between the working capital
management and corporate profitability. The
The basic theme of working capital management is studies suggested that corporate profitability can be
to provide adequate support for smooth and improved through efficient working capital
efficient functioning of day to day business management. The following studies were useful for
operations by striking a trade between the three this research:

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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-3 , 2016
ISSN : 2454-1362 , http://www.onlinejournal.in

Joshi, Lalit Kumar and Ghosh, Sudipta (2012), efficiency, different financial ratios and statistical
attempted to examine the working capital techniques were applied. Primary data was
performance of Cipla Ltd. during 2004-05 to 2008- collected from published annual reports of the
09. Primary data was collected for the study. company. Studies showed inverse relationship
Source of primary data for their study was between liquidity and profitability under the study
published annual reports of the selected company period. Quick ratio, inventory turnover ratio,
for the 5 year period. Financial ratio analysis, Debtors turnover ratio, gross profit ratio, and
statistical and econometric techniques were used in working capital turnover ratio showed satisfactory
the study. Findings of the study revealed significant performance whereas current ratio, absolute liquid
positive trend growth in most of the selected ratio, operating profit ratio of the company were
performance indicators. The selected ratios also not found to be satisfactory.
showed satisfactory performances during the study
period. Motaals test indicated significant Muhammad, Sabo et.al.(2015) examined the
improvement in liquidity performance during the impact of working capital management on
study period. There was also significant negative corporate profitability of seven firms listed on the
relationship between liquidity and profitability, floor of the Nigerian Stock for the periods of 2008
which indicated excess liquidity of the company. to 2012. Secondary data from annual reports and
accounts of the sampled companies and the
Haresh, Barot (2012), attempted to provide Nigerian Stock Exchange Fact book was collected
empirical evidence about the effects of working for the study. Descriptive statistics and GLS
capital management on profitability performance of regression analysis through STATA 11 were used
CNX Pharmaceutical companies listed on National to analyze the data. Positive relationship among
Stock Exchange of India. To analyze profitability Average Collection Period (ACP), Current Ratio
and working capital management from the financial (CR) and the size of the firm (LOGSIZE) with
reports, data for a period of 2005-06 to 2009-10 Profitability and a negative relationship with
was collected. SPSS software package was used to Inventory Turnover Period (ITP), Average
investigate the collected data. Regression analysis Payment Period (APP) were found. It was
showed that accounts receivable and accounts suggested that cash collected should be re-invested
payable were significant in explaining profitability, into short-term investment to generate profits.
while inventory turnover and cash conversion cycle
were found to be insignificant. A negative K T, Srinivas undertook a research to study
relationship between accounts receivables and working capital management through ratio analysis
corporate profitability and a positive relationship at Karnataka Power Corporation limited. The
between accounts payable and profitability was association between traditional and alternative
found xd```through his study. He concluded that working capital measures and return on investment
working capital should be managed in more (ROI), specifically in industrial firms listed on the
efficient ways to increase firm’s profitability. Johannesburg Stock Exchange (JSE) was
evaluated. It was concluded that the financial
Akoto, Richard Kofi et.al. (2013), collected data position of the company was sound as the company
from all the 13 listed manufacturing firms in Ghana made an effort to increase its production and net
covering the period from 2005-2009 to examine the profit. It was also concluded that though the
relationship between working capital management company’s earnings were increasing every year but
practices and profitability of the firms. Panel data the company’s funds were not properly utilized.
methodology was used in the study with the help of
which it was concluded that accounts receivable 4. Objectives of the study
days significantly negatively influence profitability
of listed manufacturing firms in Ghana. It was The main objective of the study is to examine the
recommended in the study that incentives should be working capital management of the selected
created o reduce their accounts receivable to 30 companies. To attain the main objective, the
days and local laws that protect indigenous firms following objectives are sought to be achieved:
and restrict the activities of importers should be
enacted to promote increase demand for locally I. To evaluate the working capital
manufactured goods both in the short and long runs performance of the selected company.
in Ghana. II. To study the liquidity position by
applying various ratios.
Chakraborty, Nirmal (2014), made an effort to III. To check the relationship between
examine the working capital performance of Dr profitability and liquidity of the selected
Reddy’s Laboratory during the period 2004-05to company.
2012-13. To measure the working capital

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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-3 , 2016
ISSN : 2454-1362 , http://www.onlinejournal.in

5. Hypothesis 8. Analysis Of The Liquidity

In conformity with the objectives of the study, the Position By Motaals
following hypothesis is taken: Comprehensive Test
i) Working capital performance of the In this test the following ratios (shown in
selected company is healthy. percentage) have been taken into consideration.
ii) There is a significant negative I. Inventory/ current assets
relationship between liquidity and II. Debtors /current assets
profitability III. Cash & bank/ current assets
6. Research methodology IV. Loans & advances& other assets/ current
assets
To carry out the present study, following
methodologies have been adopted. For I) the lower the ratio the more favorable is the
position and ranking has been done in that order.
Data source: The data required for the study has For ii), iii), and IV) the higher the ratio, the more
been collected from the capital line database as favorable is the position and thus ranking has been
well as from the company’s website. Secondary done in that order. Ultimate ranking has been done
data for the study were drawn from audited on the principle that lower the points scored the
accounts (i.e., income statement and balance sheet) more favorable are position and vice- versa.
and also from the website moneycontrol.com.
9. Relationship between Liquidity
Study Period: We have chosen the study period and Profitability
ranging from 2007-09 to 2015. Spearman’s Rank Correlation has been applied to
evaluate the relationship between liquidity and
7. Working Capital Performance Of profitability. For this purpose spearman’s rank
The Selected Sample Company correlation coefficient is computed as below.
To study the working capital performance of the Rxy= 1-[6 ΣD2/ (N3-N)]
selected company, various ratios has been taken
into consideration. Rxy= rank correlation co-efficient
D= rank difference (R1-R2)
N= number of observations
Performance drivers
Current ratio Current asset/ current To check the significance of the relationship
liability between liquidity and profitability, t test has been
Quick ratio (Current asset-stock ) / applied. If the calculated value of t is less than table
(current liability- bank value, the null hypothesis will be accepted and vice
overdraft) versa for a given significance level.
Absolute liquid (Cash and bank balance+ The t test is calculated as follow:
ratio marketable securities)/ _____ _____
(current liabilities-bank t = R√ (n-2) / √ (1-R2)
overdraft) Where R= Rank Correlation coefficient, n= No. of
Inventory turnover (sale-gross profit)/ closing observations
ratio(in times) stock
Inventory turnover 365/ inventory turnover (in In addition to above, simple statistical measured
(in days) times) like mean S.D, coefficient of variation has been
Debtors turnover Net sales/ closing debtors used in this study.
ratio (in times)
Debtors turnover 365/debtors turnover (in 10. Analysis of Working Capital
ratio (in days) times) Performance of Selected Telecom
Working capital Net sales/ working capital
turnover(in days)
Company
Current asset Sales/ current assets
turnover ratio Table 2 shows the different ratios for measuring
working capital performance. The current ratios in
Table: 1 Different Ratio Which Are Taken Into all the years are below 2: 1 (being the standard
Consideration To Analyze The Working Capital norms). Again the average of these ratios is 0.7:1
Performance Of The Sample Company which is also below the standard norms (2:1). It is
to say that current ratios of the companies
maintained standard norms neither in individual

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 Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-3 , 2016
ISSN : 2454-1362 , http://www.onlinejournal.in

years nor in that of average. Therefore, current in between 0.008 days to 0.80 days with an average
ratios are not in a satisfactory level. However, the of 0.361678 under the study period. It is observed
standard deviation of current ratio is 0.17. It that the company is maintaining a satisfactory level
indicated that current ratio of the different years are of inventory which helps to avoid the extra cost for
more or less steady as its standard deviation is very maintaining both the high and low level of
low and its coefficient of variance 24.01%. inventory under the study period.Net working
capital turnover period of the company is 2.73 on
It is observed that firms are not maintaining the an average with a standard deviation and co-
quick ratios above its standard norms (1:1) {except efficient of variation 0.36 and 13.14% respectively.
the year 2012}. It is to say that the firm does not It is to say that the time taken from cash invested in
have enough capacity to meet the short term the business to cash recovery from the business is
obligations. The quick ratios of the firm range from 135.5422 days on an average. If we analyze in
0.47:1 to 1.37:1. The mean value of quick ratios is depth, it is observed that working capital cycle is a
0.77 with a coefficient of variation 0.27%. good one. The gross working capital (sum of
current assets) cycle period of the company is
It is observed from the table that inventory 15.33on average with standard deviation and
turnover (in times) lies in between 453.06to coefficient of variation 4.515811and 29.45%
45,380.45with a mean of 8,671.36 and standard respectively.
deviation is 15367.18during the study period. The
co-efficient of variation is 177.22%. Again it is
observed from the table that inventory velocity lies

Table: 2 Distribution of different ratios of working capital in Bharti Airtel, during March 2007 to march
2015
CV
2007 2008 2009 2010 2011 2012 2013 2014 2015 Mean SD
(%)
CR 0.47 0.57 0.69 0.7 0.63 1.02 0.65 0.93 0.73 0.71 0.17 24.01
QR 0.47 0.55 0.65 0.67 0.73 1.37 0.75 0.98 0.75 0.77 0.27 34.69
ITR(times) 453.06 453.06 547.83 1,307.05 1,105.17 1,296.07 21,595.67 45,380.45 5,903.87 8,671.36 15367.18 177.22
ITR(days) 0.8056 0.8056 0.6662 0.2792 0.3302 0.2816 0.0169 0.008 0.0618 - - -
18.08 4.36
DTR(times) 14.31 12.28 12.78 15.3 21.32 23.14 20.7 22.63 20.27 24.11
DTR(days) 25.5 29.72 28.56 23.85 17.12 15.77 17.63 16.12 18 - - -
WCT(times) -2.2 -2.8 -3.07 -3.3 -2.5 3.1 -2.6 2.6 -2.44 2.73 0.36 13.14
WCT(days) 165.9 130.35 118.89 110.6 146 117.74 140.4 140.4 149.6 - - -
15.33 4.51 29.45
CAT(time) 10.46 8.49 12.31 16.28 23.33 15.71 17.36 19.1 14.96

Where CR= Current Ratio, QR= Quick Ratio, and loans & advances to current assets. It is
ITR=Inventory Turnover Ratio, DTR= Debtor necessary to mention that fixed deposits have been
Turnover Ratio, WCT=Working Capital Turnover, included in cash & bank balance. After getting
CAT= Current Asset Turnover. individual rank all the ranks on particular year has
been added to get the total rank and it is found that
From Table 3, percentage of stock out of total total rank in 2014, is the lowest and it got ultimate
current assets held by the company during the rank 1. It is indicating that the company under the
study period is shown. Higher level of inventory study period recognizes the most sound liquidity
holding indicates the lower level of liquidity position in the year 2014 followed by 2012, 2013,
position. Considering this, the liquidity rank has 2015 and 2011 places the 2nd, 3rd, 4th and 5th
been done. In case of debtors to current assets, the position respectively.
rank has been scored by keeping in mind that
higher amount of debtors out of its total current It is observed from the total rank that the trend of
assets is the indicator of better liquidity position liquidity position is more or less steady and it is
and vice-versa. The rank of debtors to current ranging from 13 to 27.
assets is 1 in 2010 as it is highest and so on.

The same consideration has been applied in case of

calculating rank of cash & bank to current assets

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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-3 , 2016
ISSN : 2454-1362 , http://www.onlinejournal.in

Table 3: Liquidity Ranking Analysis Of Bharti Airtel By Motaal’s Test

Inventories Debtors Cash Loans Liquidity Rank Total Ultimate

to CA (%) to CA &bank and Rank Rank
(%) to CA advances
(%) to CA 1 2 3 4
(%)
1 2 3 4
2015 0.253 89.27 10.48 460.66 3 5 5 5 18 4
2014 0.042 82.89 17.07 763.42 1 8 2 2 13 1
2013 0.08 86.03 13.89 492.38 2 6 4 4 16 3
2012 1.212 80.61 18.17 771.61 4 9 1 1 15 2
2011 2.111 89.71 8.17 672.61 7 4 6 3 20 5
2010 1.245 96.24 2.51 323.37 5 1 9 6 21 6
2009 2.247 92.20 5.548 202.59 8 2 8 7 25 7
2008 1.873 91.51 6.619 168.19 6 3 7 9 25 7
2007 2.803 83.18 14.02 185.29 9 7 3 8 27 8

Table 4 shows the different profitability ratios with satisfactory under the study period. The net profits
mean, standard deviation and coefficient of of the company during the last four years are stable
variation under the study period. On analyzing and lying in between 10% to 26%. It is moderately
operating profit margin it is observed that the fluctuating and ranging between 10.88% to 26.36%
operating profit of the company during all the study for the entire study period with standard deviation
periods is satisfactory. A higher operating margin of 5.46 and coefficient of variation of 24.41%.
means that the company has less financial risk. The Returns on capital employed during the last five
average operating profit margin is also satisfactory years of the study period are satisfactory. It lies
with standard deviation and coefficient of variation between 12.07% and 29.06% under the study
4.03 and 11.18% respectively. Gross profit period with mean of 20.18111, standard deviation
margins of the company are lying between 14.65 to of 7.12 and coefficient of variation of 35.27%. It is
29.33 with mean 19.66 and standard deviation and observed from the study that returns on capital
coefficient of variation of 5.62 and 28.6% employed of the company reached 29.06% (being
respectively. The ratios are within range of the maximum) in the year 2015.
standard norms (25% to 30%). Therefore it is to
say that the gross profit ratio of the company is

TABLE 4 PROFITABILITY ANALYSIS OF BHARTI AIRTEL TELECOM

2007 2008 2009 2010 2011 2012 2013 2014 2015 Mean S.D. C.V.(%)

Operating
Profit
4.04 11.18%
Margin 40.65 41.37 38.74 39.08 35.08 32.79 29.7 32.65 35.01 36.12
(%)
Gross
Profit 19.66
21.39 18.16 14.65 18.57 22.95 28.15 29.33 29.08 27.47 5.62 28.6%
Margin
(%)
Net Profit
23.31
Margin 23.78 13.22 10.88 13.56 20.12 26.36 22.58 23.99 22.46 5.46 24.41%
(%)
20.18
ROCE (%) 17.32 13.18 12.07 13.14 16.65 23.86 28.4 27.95 29.06 7.12 35.27%

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Imperial Journal of Interdisciplinary Research (IJIR)
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11. Estimated Relationship Between satisfactory in terms of current ratio

Liquidity And during the study period.
 Quick Ratio of the year 2012 showed
To know the relation between liquidity and satisfactory performance.
profitability, only two ratios are taken. Current  Debtors turnover ratio, gross profit ratio,
ratio is taken as the indicator of overall liquidity operating profit ratio showed satisfactory
and return on capital employed is taken as the performance.
principal indicator of profitability. Karl Pearson’s  Except 2012 and 2014, Working Capital
correlation coefficient has been calculated to know Turnover ratio showed negative results.
the relationship between the two variables whether  Motaals test also indicates significant
exist or not. improvement in liquidity performance
To test the significance of the relationship between during the study period. Finally, there
liquidity and profitability, work out by way of exists significant negative relationship
correlation coefficient, ‘t’-test has been applied. between liquidity and profitability, which
The t- statistics as follows indicates that Bharti Airtel has maintained
post optimal level of liquidity (i.e., excess
_____ _____ liquidity) during the period under study.
t = R√ (n-2) / √ (1-R2)
14. References
Where 1. Dutta, Sukamal (1995). “Working Capital
r = correlation coefficient Management through Financial
n = number of observations Statements Analysis of Paper Industry in
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profitability of the selected company is observed to Accountant, I.C.W.A.I., November Issue,
be 0.27under the study period. The calculated value pp.826-832
of t = .08. At 5% level of significance the table 2. Eljelly, A. (2004). “Liquidity and
value of t (2 tailed) = 3.18. Therefore, the null Profitability trade off: An empirical
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61).
3. Jafar, Amir and Sur, Debasish (2006).
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12. Limitations of the study
Management in Indian Public Enterprise
The study suffers from certain limitations which during the Post Liberalization Era: A Case
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Management Research, Vol.5, No.6, June
1. The study has been conducted over a Issue.
limited period of nine years only. 4. Padaachi, Kesseven (2006). “Trend in
2. It is mainly based on secondary data and working capital management and its
thus it carries all the limitations pertaining impact on firm’s performance: an analysis
to the data collected from secondary of Mauritian small manufacturing firms,
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view of the overall working capital Management and Profitability: Evidence
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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-3 , 2016
ISSN : 2454-1362 , http://www.onlinejournal.in

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