Companies search for liquidity and operational efficiency through minimizing their investment in. Effects of working capital management on profitability of. Impact of working capital management on firms performance. Effects of working capital management on company profitability abstract. This is because during a crisis accounts receivables have a positive effect on a firms profitability of the next year. In accordance with this aim, to consider statistically significant relationships between firm profitability and the.
The study of working capital management as a financial. Some of these studies related to our study are briefly presented in the following section in. The concept of working capital management is concerned with managing working capital components to promote a satisfying liquidity, profitability and shareholders value. Working capital management is an extremely essential issue for the healthy conduct of the sustainability of a business. In accordance with this aim, to consider statistically significant relationships between firm profitability and the components of cash conversion cycle at length, a. Impact of working capital management on the profitability of. Showing how working capital management affects profitability, liquidity and firm value. Using panel data analysis, pooled ols and fixed effect estimation, for a sample of singapore firms from 2004 to 2011, we find that managers can increase profitability by managing working capital efficiently.
The effect of working capital management on firms profitability. Analysis of the effect of working capital management on. H2 there is positive impact of total assets on profitability of firm. The effect of working capital management on profitability. Ahmed 2012 investigated the impact of working capital management on the performance of firms using a sample of 253 nonfinancial listed companies of the karachi stock exchange kse, pakistan. Improper management of working capital, that is, too much or too low working capital may suffer firms, so an optimum level of working capital is the key to a smooth inflow of profit. Using a sample of 30 uk firms and employing the pearson correlation data analysis technique, the study confirms a significantly negative association between profitability and working capital management variables.
Impact of working capital management on the performance. The effect of working capital management on profitability of. The impact of working capital management on corporate performance 6 concluded a negative relationship between them. The working capital management plays an important role for success or failure of firm in business because of its effect on firms profitability as well on liquidity. The objective of the current work is to provide empirical evidence about the effects of working capital management on profitability for a panel data of 48. Effect of working capital management on the profitability. Working capital management objective is to maximise the profits, which results into reducing the risk of not able to satisfy the maturing shortterm debt. Usama 2012 examined the effect of different variables of. Agrim aggarwal and rahul chaudhary 2015, in their research paper aimed to study the effect of working capital on the profitability in indian firms. Thus, efficient working capital management is very important for smaller firms peel and wilson, 1996.
This paper analyzes the effect of working capital management on firms profitability in kenya for the period 2003 to 2012. Their findings implied that the variables of the working capital management and profitability are inversely associated. The study used a sample of the 3 cement manufacturing firm listed at. In light of this objective the study adopts quantitative approaches to test a series of research hypotheses. Working capital management and firms profitability.
We collected data about a sample of 263 nonfinancial bse 500 firms listed at the bombay stock bse from 2000 to 2008 and evaluated the data using ols multiple regression. The main aim of this study is to investigate the relationship between working capital management wcm and firms profitability in the food sector of. Pdf the impact of working capital management on firms. The results showed that there is a strong negative relationship between working capital management and profitability. It is also imperative for the growth of an organization. Effect of working capital management on the profitability of selected quoted firms study in nigeria. This shows that working capital management is important with respect to profitability of a firm in the textile industry of pakistan. H1 there is positive impact of working capital management on profitability of firm. The main objective is to discover the effect of working capital management wcm on firms profitability fp in over all food sectors because heavy investments have been made in the working capital in this sector and this sector is also neglected in research in the past. The management of receivables is a significant component of a firms working capital management.
Working capital management is important part in firm financial management decision. A quantitative method was applied with philosophical stances in objectivism and. These studies used various variables and methodologies for analysis. Evidence from pakistan global journal of management and business research volume xii issue xvii version i 2 y 2012 ear. Prior evidence has determined the relationship between working capital and performance. A panel data methodology was used with different regression estimators to analyze this relationship based on a balanced panel of 10 listed firms during the period 20082017. Effect of working capital management on profitability. Working capital management plays a significant role in improved profitability of firms. Effects of working capital management on firm performance. Working capital management efficiency is vital especially for manufacturing firms, where a major part of assets is composed of current assets 1.
Annual data of 41 firms are used for the period 20052016 in the study. The effects of working capital management on firm profitability. Management of working capital has profitability and liquidity implications and proposes a familiar front for profitability and liquidity of the company. The impact of working capital management on corporate. Empirical evidence from textiles industry of bangladesh.
The main aim of this article is to examine the effect of working capital on profitability of indian firms. To reach optimal working capital management, firm manager should control the tradeoff between profitability maximization corresponding author. The effect of working capital management on firm profitability. Otherwise, the economic and political situation is very much alike, thus contributing to a good research environment. Pdf effect of working capital management on profitability. A sample of three 3 manufacturing companies listed on.
In this paper we examine the role of business cycles on the working capitalprofitability relationship using a sample of finnish listed companies over an 18year period. Pdf this study investigated the impact of working capital management on the profitability of fifteen listed fuel and power companies in. Comment on the overall impact of the work ing capital management practices on the profitability of listed manufacturing firms on the jse. To investigate this relationship the author collected secondary data from 8 flour factories in gedeo zone for the period of 2012 to 2016. Effect of working capital management on the profitability of.
The working capital management plays an important role for success or failure of firm in business because of its effect on firm s profitability as well on liquidity. Reza zadeh and heydarian 2010 explored the effect of working capital management on the profitability. Impact of working capital management on the profitability. Pdf the impact of working capital management on firm. Melita, maria and petros 2010 empirically investigated the effect of working capital management on firms financial performance in an emerging market. The effect of different variables of working capital management including current ratio and collection.
Thus, this study examined the impact of working capital management on firms. Some of these studies related to our study are briefly presented in the following section in order to assess the research gap. Working capital management wcm is an important corporate financial decision since it directly affects the liquidity and profitability of the firm. This paper analyzes the effect of working capital management on firm s profitability in kenya for the period 2003 to 2012. The purpose of this study is to find out the effect of working capital management on company profitability. Pdf impact of working capital management on firms profitability. The evidence implies that firms may improve their profitability through efficient working capital management regarding the accounts receivable, inventory and.
According to kargar and bluementhal 1994, any firm that put inaccurate working capital management procedures into practice may likely face bankruptcy even though their profitability is constantly positive. The objective of this research is therefore to establish the effect of working capital management on the profitability of manufacturing companies in kenya. The main purpose of this study is to examine the effect of working capital management on profitability. In addition, this study considered individual drivers of working capital management. The paper examines the effects of working capital management on malaysian smes profitability within the sight of control factors measured by the size of the firm, leverage, and sales growth. This research has been performed using a sample of 100 companies listed on the nigeria stock exchange nse from 2005 to. Effects of working capital management on company profitability. Sound working capital management is crucial to the survival of an organization. Over the years, it appeared that firms failed to subject shortterm investments to proper management thereby leading to either excessive or inadequate working capital which in turn affected their profitability. Working capital management is the ability to control. The purpose of this research is to investigate the effect of working capital management on firms profitability. In accordance with this aim, to consider statistically significant relationships between firm profitability and the components of cash conversion cycle at length, a sample consisting of istanbul stock exchange ise listed manufacturing firms for the period of 19982007 has been analysed under a. The recent economic downturn of 20072008 has brought renewed focus on working capital policies.
Firms can achieve optimal management of working capital by making the tradeoff between profitability and liquidity. A firms high liquidity risk results in high profitability. In this paper we investigate the relationship between profitability and working. The study investigated the effect of working capital management on profitability of nigerian listed companies during the period 20002009. Financial management practices and performance of smes in ghana. Using panel data analysis, pooled ols and fixed effect estimation, for a sample of singapore firms from 2004 to 2011, we find that managers can increase. Abstract this study examined the effect of working capital management on the profitability of selected quoted firms in. Effect of working capital management on firm profitability. The purpose of this thesis is also to find out which working capital metrics and drivers affect profitability the most, and in which industries working capital management effects profitability the most. Working capital management has lately been a hot topic since the financial turmoil of the late 2000s. The purpose of this paper is to investigate the impact of working capital management on firms profitability in nigeria. Impact of working capital management on the performance of. We collected data about a sample of 263 nonfinancial bse 500 firms listed at the bombay s.
Firms may have an optimal level of working capital that maximizes their value. The effect of working capital management on profitability in. The working capital components and firms profitability tradeoff was examined via the fixed effects panel regression model. A panel data has been used in this study for 10 sample companies that cover the period of 7 years from 2008 to 2014. Financial management practices and performance of smes in. For the working capital policy managing accounts receivables this is not the case. The effect of working capital management on firms profitability core. To empirically satisfy this, this paper examined working capital management and firms profitability in nigeria quoted firms on nigerian stock exchange nse. This study will try to provide an understanding of how firms can manage their working capital in an optimal way during a crisis. Companies search for liquidity and operational efficiency through minimizing their investment in working capital. The present study contributes to the existing stock of knowledge by examining the effect of working capital management on profitability in the context of an emerging capital market such as.
The impact of working capital management on firm profitability. Pdf the effect of working capital management on firms. The objective of the current work is to provide empirical evidence about the effects of working capital management on profitability for a panel data of 48 non financial firms during the periods 20072010. The study utilized panel data, pooled ols regression and fixed effects. The study used a sample of the 3 cement manufacturing firm listed at the nairobi securities exchange. The purpose of this study is to examine the effect of. The purpose of this study is to develop the research on the relationship between working capital management and profitability by investigating how it is affected by different company characteristics. The aim of this study is to analyze the effect of working capital management on firm profitability. The study aims at examining the statistical significance between companys working capital management and profitability. They hypothesized that working capital management leads. Hence, working capital management is an important corporate financial decision since it directly affects the liquidity and profitability of the firm. This study aims to reveal the tradeoff between working capital components and firms profitability by using the data of the firms listed on borsa istanbul industry index in turkey.
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