Madras Cements Limited : Working Capital Policies

One of the important functions of a firm is to manage working capital effectively. A firm should maintain adequate level of working capital to meet the current obligations and maintain uninterrupted business operations. It should ensure that it does not suffer from lack of liquidity. The failure of the firm to meet its obligations due to lack of sufficient liquidity is highly risky as it will result in bad credit image, loss of creditors' confidence, high-cost emergency borrowing, unnecessary legal battles or even closure of the firm. At the same time, if the level of working capital is more, holding cost of current assets would be more, thus badly affecting the profitability. Based on these theoretical backgrounds, the case measures and evaluates the liquidity, profitability and risk trade-off of Madras Cements Ltd., a premier cement manufacturer based in South India.