Working Capital: A Summary of Ratios by Industry

2017 ◽  
pp. 1-7
Author(s):  
Luann J. Lynch ◽  
Graham Gillam ◽  
Jennifer Forman
Keyword(s):  
Business Models ◽  
Business Practices ◽  
Capital Management ◽  
Working Capital ◽  
Operating Cycle ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
Capital Ratios

The case graphically presents various working capital ratios (days inventory outstanding, days sales outstanding, days payables outstanding, cash conversion cycle, and operating cycle) over the 2009-through-2012 period by industry and for specific well-known companies. Students are given the opportunity to craft an intuitive story around the ratios they are given in the case. The case works well as a supplement for classes on working capital management. It is designed to help students relate the often difficult-to-grasp concepts around working capital and working capital ratios to industries and companies that they are familiar with, using companies whose business models and business practices are particularly good illustrations of the relevant concepts.

scholarly journals Working Capital Management and the Profitability of the Manufacturing Sector: A Case Study of Pakistan’s Textile Industry

2011 ◽  
Vol 16 (2) ◽  
pp. 141-178 ◽  
Author(s):  
Shahid Ali
Keyword(s):  
Fixed Effect Model ◽  
Ordinary Least Squares ◽  
Fixed Effect ◽  
Capital Management ◽  
Working Capital ◽  
Return On Assets ◽  
Operating Cycle ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
Effect Model

This study explores the association between working capital management and the profitability of textile firms in Pakistan. The efficiency of working capital management is reflected by three variables: cash conversion efficiency, days operating cycle, and days of working capital. We use return on assets, economic value added, return on equity, and profit margin on sales as proxies for profitability. A balanced panel dataset covering 160 textile firms for the period 2000–05 is analyzed and we estimate an ordinary least squares model and a fixed effect model. Return on assets is found to be significantly and negatively related to average days receivable, positively related to average days in inventory, and significantly and negatively related to average days payable. Also, return on assets has a significant positive correlation with the cash conversion cycle, which would suggest that a longer cash conversion cycle is more profitable in the textiles business. The findings of the regression analysis show that average days in inventory, average days receivable, and average days payable have a significant economic impact on return on assets. The findings of the fixed effect model reveal that average days in inventory and average days receivable both have a significant impact on return on assets.

scholarly journals The Impact of Working Capital Management on Profitability: The Case of Small and Medium-Sized Export Companies in Tunisia

2011 ◽  
Vol 15 (3) ◽  
pp. 71-88 ◽  
Author(s):  
Meryem Bellouma
Keyword(s):  
Negative Relationship ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Random Effects Models ◽  
Accounts Receivable ◽  
Cash Conversion Cycle ◽  
Fixed And Random Effects ◽  
Financial Decision ◽  
The Impact

Working capital is an important component in the financial decision of the company. An optimal working capital management is reached through a trade off between profitability and liquidity. This study aims to provide empirical evidence about the effects of working capital management on the profitability of 386 Tunisian export SMEs observed from 2001 to 2008. The results of fixed and random effects models show a negative relationship between corporate profitability and the different working capital components. This reveals that Tunisian export SMEs should shorten their cash conversion cycle by reducing the number of days of accounts receivable and inventories to increase their profitability.

scholarly journals A Evaluation on the Working Capital Management

2019 ◽  
Vol 8 (2S8) ◽  
pp. 736-739
Keyword(s):  
Trend Analysis ◽  
Annual Reports ◽  
Optimum Level ◽  
Ratio Analysis ◽  
Capital Management ◽  
Working Capital ◽  
Operating Cycle ◽  
Working Capital Management ◽  
Restricted Region ◽  
Secondary Objective

This assignment deal with the “A Study on the Evaluation of Working Capital Management with reference to SHILLONG URBAN COOPERATIVE BANK.' Working Capital Management is concerned with the issues that occur in the attempt to handle present assets, present liabilities and the interrelationship between them. The goal of Working Capital Management is to manage the current assets and current liabilities of the firm in such a way that the satisfactory level of Working Capital is mentioned. Current assets should be big enough to cover their present liabilities to guarantee a decent security margin. The primary goal of this research is to study the management of working capital and the efficiency of handling a working capital in a business. The secondary objective of this research is to study the optimum level of the company's current assets and current liabilitiesTo study the liquidity situation through different working capital associated ratios, to study economic performance using trend analysis instruments. The study of working capital management is important because, unless the working capital is managed effectively, effectively monitored, properly planned and periodically reviewed at regular intervals to remove bottlenecks, if any, the company can not gain. profits and increase its turnover. Working Capital research is based on instruments like Trend Analysis, Ratio Analysis, Operating Cycle, etc. Further the research is based on the Annual Reports of the last 5 years. And even factors such as the assessment of rivals, the assessment of the sector was not regarded during the preparation of this project. The secondary technique of information collection is used for this research. The purpose of the information compilation was to study the company's management of working capital. Working capital in the form of current assets is needed to cope with the issue resulting from the absence of instant realization of money against sold products. Therefore, adequate working capital is needed to maintain sales activity.Efficient management of working capital involves firms to work with a certain quantity of net working capital, the precise quantity varying from company to company and depending, among other things; on the nature of the firms. This research has some constraints such as restricted information, restricted period, restricted region, and the length of the research is very small.

scholarly journals Manajemen Modal Kerja Dan Dampaknya Terhadap Nilai Perusahaan Dengan Corporate Governance Sebagai Variabel Pemoderasi

2014 ◽  
Vol 6 (1) ◽  
pp. 68
Author(s):  
Adrianus Dhimas Setyanto ◽  
Ika Permatasari
Keyword(s):  
Corporate Governance ◽  
Firm Value ◽  
Stock Exchange ◽  
Capital Management ◽  
Working Capital ◽  
Corporate Values ◽  
Working Capital Management ◽  
Enterprise Value ◽  
Cash Conversion Cycle ◽  
The Relationship

AbstractThis study aims to determine the effect of working capital management on firm value. Corporate governance is used as a moderating variable in this study to explore the role of corporate governance in the relationship between working capital management with corporate values. Program participants of Corporate Governance Perception Index (CGPI) are used as a sample during the period from 2003 to 2011 and listed on the Indonesian Stock Exchange (IDX). We were using simple linear regression and the testing of moderating effects were calculated by Moderated Regression Analysis (MRA). The results showed that the working capital management has an influence on the value of the firm. However, corporate governance variables failed to moderate the relationship between working capital management and enterprise value. It shows that companies and investors in the market still lack concern for the program response and Corporate Governance Perception Index (CGPI) as an assessment of the application of the principles of corporate governance that has been done by the company .Keywords: Working Capital Management, Cash Conversion Cycle, Corporate Governance, Firm Values

scholarly journals Cash Conversion Cycle and Profitability, Evidence from Jordan

2019 ◽  
Vol 11 (2) ◽  
pp. 81
Author(s):  
Manar Moffadi Al-Mohareb
Keyword(s):  
Stock Exchange ◽  
Theoretical Aspect ◽  
Practical Aspect ◽  
Manufacturing Firms ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
Amman Stock Exchange ◽  
The Impact

This study investigates the impact of working capital management and its components on profitability as a practical aspect, and how is compatible with the theoretical aspect. Besides, it examines other financial factors that may affect profitability by using a sample of Jordanian manufacturing firms listed in the Amman Stock Exchange for the period (2016-2018). Theoretically, manufacturing firms that have been studied have current assets over half of their total assets. Therefore, the working capital management role will be clearer on firm profitability.Practically, the results indicate that there is a significant relationship between the cash conversion cycle, which is considered as a proxy of working capital management, and profitability of the manufacturing firms. This provides an opportunity to create value for shareholders by decreasing receivable accounts and inventory, enhancing the profitability of the firms and reducing the collection period and by adopting effective credit policy.

scholarly journals Determinants of Working Capital Management in Latin American Companies

Innovar ◽  
2014 ◽  
Vol 24 (51) ◽  
pp. 5-17 ◽  
Author(s):  
Samuel Mongrut ◽  
Darcy Fuenzalida O’Shee ◽  
Claudio Cubillas Zavaleta ◽  
Johan Cubillas Zavaleta
Keyword(s):  
Data Analysis ◽  
Latin American ◽  
Firm Value ◽  
Panel Data Analysis ◽  
Country Risk ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
Unbalanced Panel Data

The aim of this study is to determine the factors that affect working capital management in Latin American companies. Using an unbalanced panel data analysis for companies quoted in five Latin American capital markets it is shown that companies in Argentina, Brazil, Chile and Mexico are holding cash excesses, which could destroy firm value. Results show that the industry cash conversion cycle, the company market power, its future sales and country risk have an influence on the way Latin American companies manage their working capital with significant differences among countries in the region.

Financial constraints and optimal working capital – evidence from an emerging market

2018 ◽  
Vol 14 (1) ◽  
pp. 37-53 ◽  
Author(s):  
Gaurav S. Chauhan ◽  
Pradip Banerjee
Keyword(s):  
Financial Constraints ◽  
Emerging Market ◽  
Manufacturing Firms ◽  
Capital Management ◽  
Working Capital ◽  
Partial Adjustment ◽  
Working Capital Management ◽  
Content Type ◽  
Cash Conversion Cycle ◽  
Systematic Feature

Purpose The purpose of this paper is to investigate the existence of an optimal or target level of working capital for the Indian manufacturing firms, and whether firms intensely follow the target or not. Design/methodology/approach The paper uses cash conversion cycle as a measure of net working capital and employs partial-adjustment dynamic panel models to test its target-following behavior. Findings The empirical results show that there is no evidence of systematic target-following behavior of working capital for the Indian manufacturing firms. The results hold true even after dividing the sample into four groups depending on the sign and magnitude of deviation. The results further show that lack of target-following tendency is not quite influenced by varying firm-specific characteristics and, therefore, seems to be a systematic feature across firms in India. Research limitations/implications Scarcity of such working capital management studies across emerging economies, facing several financial constraints, limits the comparison of findings. Future studies should be conducted to confirm the results. Practical implications The findings imply that even though an optimal working capital might exist, emerging market firms may not be able to actively pursue it on account of several financial constraints and managerial considerations. Originality/value The study contributes to the scant existing literature on the target-following behavior of working capital management in the Indian manufacturing firms, representing a typical emerging market facing several financial constraints.

Modifying the cash conversion cycle: revealing concealed advance payments

2014 ◽  
Vol 63 (3) ◽  
pp. 341-353 ◽  
Author(s):  
Anna-Maria Talonpoika ◽  
Sari Monto ◽  
Miia Pirttilä ◽  
Timo Kärri
Keyword(s):  
Empirical Data ◽  
Stock Exchange ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Remarkable Effect ◽  
Cash Conversion Cycle ◽  
Accounts Payable ◽  
Business Practitioners

Purpose – The cash conversion cycle (CCC) is widely used in the academic studies of working capital management and supply chain efficiency. The purpose of this paper is to introduce a modification of this measure that takes into account advance payments as a component of operational working capital. Design/methodology/approach – A new measure, the modified cash conversion cycle (mCCC) is introduced and tested with empirical data of companies in Helsinki Stock Exchange. Findings – The mCCC reveals the real efficiency of operational working capital in companies that receive advance payments to a remarkable extent. Research limitations/implications – The mCCC can be used in empirical analysis in academic studies. In this paper, the empirical data are used only for testing the mCCC. The paper concerns received advance payments, but the mCCC can also be extended also to other components of operational working capital ignored by the traditional CCC. Practical implications – The paper offers insights into the variations of CCC for class teachers, and business practitioners, particularly financiers, who deal with operational working capital, cash flow predictions and calculations. Originality/value – There are current items that may have a remarkable effect on operational working capital, but traditionally only inventories, accounts receivable and accounts payable are discussed. The authors argue that also other current items should be taken into account, if they affect the efficiency of operational working capital. The new mCCC is encouraged to be used instead of the CCC when observing working capital management.

Effect of Working Capital on Profitability of Selected Quoted Firms in Nigeria

2012 ◽  
Vol 13 (3) ◽  
pp. 367-381 ◽  
Author(s):  
Olayinka Olufisayo Akinlo
Keyword(s):  
Trade Credit ◽  
Capital Management ◽  
Working Capital ◽  
Credit Policy ◽  
Inventory Policy ◽  
Working Capital Management ◽  
Accounts Receivable ◽  
Financial Firms ◽  
Cash Conversion Cycle ◽  
Accounts Payable

The article examines the relation between working capital management and profitability for a sample of 66 Nigerian non-financial firms for the period 1997–2007. Trade credit policy and inventory policy are measured by number of days accounts receivable, accounts payable and inventories; and the cash conversion cycle (CCC) is used as a comprehensive measure of working capital management. The results suggest that firm’s profitability is reduced by lengthening the number of days accounts receivable, number of days of inventory and number of days accounts payable. The result shows that shortening the CCC improves the profitability of the firms.

scholarly journals Working Capital Management dan Firm Profitability Perusahaan Sektor Manufaktur di Bursa Efek Indonesia dan Bursa Efek Filipina Periode 2014-2018

2020 ◽  
Vol 1 (1) ◽  
pp. 31-42
Author(s):  
Ricky Adiyanto ◽  
Werner Ria Murhadi ◽  
Liliana Inggrit Wijaya
Keyword(s):  
Stock Exchange ◽  
Linear Regression Method ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Accounts Receivable ◽  
Cash Conversion Cycle ◽  
Accounts Payable ◽  
Conversion Period ◽  
Firm Profitability

This study aims to analyze the effect of working capital management on the profitability of companies in Indonesia and Philippines. This study uses secondary data from companies listed in Indonesia Stock Exchange and Philippines Stock Exchange in the 2014-2018 period.  The sample used in this study includes manufacturing sector companies listed in Indonesia Stock Exchange and Philippines Stock Exchange in that period. This research uses multiple linear regression method. Working capital is measured using cash conversion cycle, accounts receivable conversion period, inventories conversion period, and accounts payable deferral period. The results of the Indonesian sample show that the cash conversion cycle and its components, namely the accounts receivable conversion period, the inventories conversion period, and the accounts payable deferral period have a significant positive effect on firm profitability. For the Philippine sample, the result of the study show that the cash conversion cycle and its components does not have a significant effect on firm profitability. Keywords: cash conversion cycle, accounts receivable conversion period, inventories conversion period, accounts payable deferral period

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