Navigating Firm Performance through Working Capital Management: Insights from FMCG Firms

Working capital management is pivotal for corporate health, underpinning a firm's survival, liquidity, solvency, and profitability across all organizational types and sizes. Effective working capital management is fundamental to a firm's sustained survival, liquidity, solvency, and profitability, regardless of its operational context. This study investigates how working capital management influences the financial performance of firms listed under the Nifty FMCG Index during the period from 2015 to 2024.Employing both random and fixed-effect panel data models, the study uncovers several key findings. We identify a statistically significant and positive link between both the Inventory Conversion Period (ICP) and Debtor Collection Period (DCP) with Operating Profit Margin (OPM). Significantly, DCP demonstrates a strong and consistent positive impact on various profitability measures, such as Net Profit Margin (NPM) and Return on Capital Employed (ROCE). The Payable Deferral Period (PDP) is also found to be positively associated with NPM, suggesting that managing supplier payments strategically contributes to profitability. These results underscore the critical and often strategic role of specific working capital components in shaping the financial performance of FMCG firms.