Operational Efficiency and Financial Resilience: Optimizing Working Capital in Manufacturing Firms – A Kennametal India Case Study

Abstract

This study looks at working capital management (WCM) practices at Kennametal India Ltd. with a view to establishing a relationship between key components-inventory, receivables, and payables-and company profitability. Both descriptive and analytical research designs were employed, with the collection of data through interviews and document analysis. The study is based on five years financial statements, which were statistically analyzed. Findings suggest that working capital goes hand in hand with sales; however, increases in working capital are also accompanied by higher levels of inventory and accounts receivable, suggesting the likelihood of inefficiencies. Positive correlation analysis has shown the working capital components to have a mild negative relationship with net profit, meaning that an increase in working capital may have a detrimental effect on profitability. The regression results indicated that the cash conversion cycle and its components do not significantly affect return on assets. According to the study, a maximum of 50 days is the average time for cash collections from debtors. A hybrid approach to working capital management is being followed at Kennametal, involving a mix of conservative and aggressive strategies while carefully allocating resources in balancing risk and return. Trade credit policies improve relationships with associated suppliers and customers for further financial performance enhancement and make optimally efficient use of inventory management practice to allow the reduction of cash collection period. All this will go further reduction of operational cost thus maximizing profits in the long run while also leading to operational efficiency with a sense of competition.