View working capital management research papers on academia. Working capital management is a strategy that requires monitoring a companys current assets and liabilities to ensure its efficient operation. Working capital management, profitability, cash conversion cycle, inventory days. Firms may have an optimal level of working capital that maximizes their value. Working capital of a firm comprises on current assets. He is very grateful to marc jegers, luc soenen, ilse verschueren and an anonymous. Working capital management and its concepts management. Good working capital management is essential to maintaining liquidity and profitability, not to mention the coverage of cashflow. Does working capital management affect profitability of. Working capital is an indicator for measuring the liquidity which is defined as adequacy of cash for doing firms obligations. Management of working capital is one of the most important functions of corporate management. Analysis of the effect of working capital management on profitability. Effects of working capital management on company profitability abstract. It has an effect on liquidity as well as on profitability of the firm.
The research findings show that the components of working capital affect on corporate performance. International journal of trade, economics and finance, vol. Working capital is part of the total assets of the company. For this purpose, we studied a sample of companies listed in tehran stock exchange during the years 2006 to 2010. Impact of working capital management on firms performance. Working capital management and profitability of firms. Discuss research paper on working capital within the publish upload project or download reference project forums, part of the projects hub for management students mba projects and dissertations bms projects bba projects category. Does working capital management affect profitability of belgian firms. Working capital management is it really affects the profitability. Previous research findings related to working capital management practices indicated that if working capital management could be significantly improved in the sme sector, then few firms would fail, thus supporting the view that working capital management practices are extremely important for smes peel and wilson, 1994.
Therefore, managers may enhance the profitability of their firms by minimizing the inventory turnover, account. Effects of working capital management on company profitability. Working capital management is the main part of business management. The interplay between working capital management and a. Asiapacific journal of management research and innovation. Now a day working capital management has considered as the main central issues in the firms and financial managers are trying to identify the basic drivers and level of working capital management lamberson, 1995. The paper is an attempt to show the relationship between working capital and the profitability function of pharmaceutical industry in bangladesh. The purpose of this paper is to examine the effect of working capital management on firms performance for a sample of firms listed on a small emerging market, namely amman stock exchange. Working capital management, corporate performance, and.
The working capital management is considered to be a vital issue in liquidity and shortterm investment decision of the firm. Hence the working capital management efficiency is measured in terms of the days of working capital dwc. The analysis is done over a long window spanning across 20002014 by using ordinary least square ols, fixed and randomeffects model and generalized method of moments gmm on 2,327 firmyear observations, a panel data of 179 companies listed on. Working capital management has lately been a hot topic since the financial turmoil of the late 2000s. Working capital may be classified in two ways k inds of working capital a c oncept based working capital. Analysis of the effect of working capital management on. A study of listed manufacturing firms in ghana march 3, 2015. Working capital is defined as current assets minus current liabilities. Working capital management as a financial strategy has its effects on liquidity as well as profitability of the firm. Generally, all short term assets which company use in daily basis is included in working capital. The study aims at examining the statistical significance between companys working capital management and profitability. Abstract firms financial management policies compose ofvery important decisions including working capitalmanagement.
Of the three strategies, working capital management efficiency has the greatest effect on working capital in the terminal market strategy, and the relationship between the accounts receivable turnover ratio and working capital is not significant. Thus, the following theoretical relationships exist in the optimum working capital level of a firm. An analysis of working capital management efficiency in telecommunication equipment industry. Working capital management plays a significant role in improved profitability of firms. Working capital management research papers academia. Working capital management definition investopedia. Impact of working capital management on the performance of.
This study analyses the working capital management efficiency of firms from. Every organization whether public or private, profit oriented or not, irrespective of its size and. Generally, it is the difference between current assets and current liabilities. The importance of working capital management investopedia. Working capital management and firms international journal. Harif et al 2010 did a research on the financial management practices of smes in malaysia, with the results indicating that lack of working capital which accounted for 93. Effects of working capital management on performance of.
Prior evidence has determined the relationship between working capital and performance. Internal control systems, working capital management. In contrast, firms with more growth opportunities, and firms with higher leverage, investment in fixed assets and return on assets have a more aggressive working capital policy. Working capital is also called revolving, circulating or short term capital. In the field of financial management, working capital management is a very sensitive area 3. The basic purpose of managing working capital is controlling of current financial resources of a firm in such a way. Evidence from ghanaian listed manufacturing firms richard kofi akoto1, dadson awunyovitor2 and peter lawer angmor3 1department of banking and finance, university of professional studies, accra, ghana. Thus, this study examined the impact of working capital management on firms. Working capital management practices of small firms in the. Working capital management and firms performance in. Pdf a model for working capital management in the inter. Working capital management page 8 words, it represents the current assets required on a continuing basis over the entire year.
A sample of three 3 manufacturing companies listed on. Capital markets, working capital management, empirical. Practically speaking, it is the daily, weekly and monthly cash requirement for the operations of a business. The author is from the faculty of applied economics ufsia. The period of time between the point at which cash is first spent on the production of a product and the final collection of cash fro m a.
The results also show that it is longer for older firms and companies with greater cash flows. Enqvist et al 2011 documented that there is a negative relationship between cash conversion cycle and profitability. Working capital management and performance of selected. This paper investigates the impact of working capital management wcm on firm performance among listed iranian manufacturing firms. Pdf working capital management of indian fmcg companies. The results of the research show that there is a significant impact of the working capital management on profitability of company. Working capital management wcm is an important corporate financial decision since it directly affects the liquidity and profitability of the firm. The effect of working capital management on profitability. They argued that cash conversion cycle and inventory turnover significantly affect the operations of the firms. Working capital management and firm performance in.
Some of the factors that determine the amount of working capital needed include. The efficient management of working capital is crucial to the profitability of firms, therefore, it is prudent that management of firms make available in the ri. The purpose of this paper is to provide empirical evidence on the effects of working capital management on the profitability of small and mediumsized portuguese firms. The purpose of this study is to find out the effect of working capital management on company profitability. Working capital is one of the important measures of a firms efficiency and. To investigate this relationship between these two, the author collected secondary data from glaxo smith kline pharmaceutical company. Working capital management wcm plays an imperative role in corporate financial sustainability. The main objective of this study is providing empirical evidence about the impact of working capital management on profitability and market evaluation of the companies listed in tehran stock exchange.
This paper analyzes the effect of working capital management on firms profitability in kenya for the period 2003 to 2012. Working capital management, firm performance and macroeconomic. Tandon committee has referred to this type of working capital as core current assets. Research paper on working capital management paradise. Van horne 1995 explains that, working capital management is the administration of current assets in the name of cash, marketable securities, receivables and staff advances, and inventories. The purpose of this study is to identify whether the. When working capital management efficiency is higher, working capital holdings are lower.
The relationship between working capital management and. The effect of working capital management on firms profitability. Researchers have approached working capital management in numerous ways. This article aims to investigate the relationship between working capital management and firm performance in an emerging market. Impact of working capital management on profitability and. Every business require the funds for its establishment which is called fixed capital and require funds to carry out its day to day operations like purchase of raw material, payment of wages etc. Working capital management efficiency is vital especially for manufacturing firms, where a major part of assets is composed of current assets 1. Companies search for liquidity and operational efficiency through minimizing their investment in working capital.
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