Effect of Working Capital Management on the Profitability of the Indian Pharmaceutical Sector

The aim of the research is to study the working capital management in the area of pharmaceutical industry. Since the study is associated with the pharmaceutical sector of India, the main reason to choose this sector for the research is that in the case of pharmaceutical firms, the market leadership is not based on product innovation, rather on new product development. Thus these firms of pharmaceutical sector, in search of new drugs and processed are bearing high costs of research and development. The average cost in discovering and developing a new drug is more than $1 billion dollar and this process of new product development in case of pharmaceutical firms takes near about twelve years (Garnier, 2008). For this purpose they might need high liquidity to finance these costs at different occasions in the due course of business. Thus, this might be having an effect on the working capital management of the pharmaceutical firms, as it is concerned with the adequate liquid assets of the firms. Thus, an attempt is made through this research to study the relationship of working capital management with its important components such as profitability, liquidity and debt used by these Indian pharmaceutical firms. The other reason of this research is that during the review of literature part of the research, not a single research paper was found on the pharmaceutical sector of any country. This helped in selecting the pharmaceutical sector in India as the research area. Also the research on the working capital management is almost untouched in India, because there is not any research paper found on this topic of working capital management in India.