Working Capital Management and Profitability: Evidence from Indian MSMEs

This study examines the relationship between working capital management (WCM) and profitability in Indian Micro, Small, and Medium Enterprises (MSMEs). Using data from the Reserve Bank of India's surveys and financial statements of 250 MSMEs across manufacturing and service sectors from 2019-2023, we analyse how components of the cash conversion cycle impact return on assets (ROA) and return on equity (ROE). Our findings reveal a significant negative relationship between the cash conversion cycle and profitability metrics, suggesting that efficient working capital management enhances MSME profitability. The study contributes to the limited empirical evidence on Indian MSMEs and provides practical insights for managers and policymakers.