Sensitivity of profitability to working capital management: a study of Indian corporate hospitals

Working capital management almost always determines the ability of a firm to earn profit. Efficiency with which a firm handles working capital ensures prosperity while neglect would spell danger for the very survival of the firm. The study focuses on the impact of working capital management on profitability of selected Indian corporate hospitals. The time span is ten years from 1996 to 2006. The results of regression analysis point out that the current ratio, cash turnover ratio, proportion of current assets to operating income and leverage have a negative influence on profitability. Stepwise regression analysis has identified seven prominent variables that significantly influence profitability. Path analysis reveals that 'quick ratio' has the highest direct effect on profitability, while 'current ratio' has the least direct effect.