How does working capital management affect the profitability of Vietnamese small- and medium-sized enterprises?

2017 ◽  
Vol 24 (1) ◽  
pp. 2-11 ◽  
Author(s):  
Hien Tran ◽  
Malcolm Abbott ◽  
Chee Jin Yap
Keyword(s):  
Global Economy ◽  
Capital Investment ◽  
Raw Materials ◽  
Optimal Level ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Accounts Receivable ◽  
Accounts Payable

Purpose Well-designed and implemented working capital management (WCM) will encourage positive returns for a business and establish the firm’s value, while ineffective management will undoubtedly lead to failure of the enterprise. The paper aims to discuss these issues. Design/methodology/approach In business, fixed capital and working capital are the two main forms of capital used. The current assets used in the business as working capital for day-to-day operations include raw materials, work in progress, finished goods, bills receivable, cash and bank balance. This paper analyses the relationship between WCM and profitability in Vietnamese small- and medium-sized enterprises (SMEs) after integration into the global economy. Findings The results suggest that SME owner-managers can increase their firm’s profitability by reducing the number of days of accounts receivable, accounts inventories and accounts payable to an optimal minimum. In addition, a robustness check of this study indicates that high profitability will be achieved, with an optimal level of working capital investment in accounts inventories, accounts receivable and accounts payable. Originality/value No work of this sort has been applied to Vietnamese circumstances. It is also rare in SE Asia more generally.

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

Working capital management, board structure and Tobin's q ratio of Thai listed firms

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nongnit Chancharat ◽  
Chamaiporn Kumpamool
Keyword(s):  
Board Of Directors ◽  
Capital Investment ◽  
Generalized Method Of Moments ◽  
Board Structure ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Listed Firms ◽  
Capital Financing

PurposeThis study investigates whether the integration between working capital management (WCM) and the structure of a firm's board of directors impacts its Tobin's q ratio. The sample set consists of 319 Thai listed firms with 3,190 firm-year observations from 2010 to 2019.Design/methodology/approachThe two-step generalized method of moments (two-step GMM) model is employed to address endogeneity.FindingsThe empirical results show that having both (1) a high level of net working capital holdings, a long period of net trade cycles or using an aggressive policy in working capital investment and (2) a more diverse board of directors decrease a firm's Tobin's q ratio. Conversely, when a firm's managers employ an aggressive policy for their working capital financing and the board structure of their firms is highly diverse, the firm's Tobin's q ratio increases. This indicates the appropriateness of some WCM policies is dependent on the characteristics of a firm's board of directors. Thus, the different integration between WCM and board structure may elicit dissimilar outcomes for a firm's Tobin's q ratio.Originality/valueTo their knowledge, the authors are the first to investigate the influence of the integration between WCM and board characteristics on Tobin's q ratio.

scholarly journals Role of working capital management in profitability considering the connection between accounting and finance

2020 ◽  
Vol 5 (2) ◽  
pp. 257-267
Author(s):  
Amer Morshed
Keyword(s):  
Capital Investment ◽  
Capital Management ◽  
Working Capital ◽  
Structured Interviews ◽  
Risk And Return ◽  
Working Capital Management ◽  
Content Type ◽  
Conservative Policy ◽  
Critical Skills ◽  
The Relationship

PurposeThe study aims to explain the relationship between accounting and finance through measuring the effect of rational working capital management on profitability.Design/methodology/approachEmploying the methodology of semi-structured interviews with sixteen financial managers.FindingsThe findings pointed out the relationship between accounting and finance is complementary, since it supports the accountant by the critical skills and information, like project evaluation, managing the company funding resources and working capital management. These skills put the accountant up to the financial manager stage. The working capital investment and financing policies have the most significant impact on profitability. These policies related to risk and return theory; since the conservative policy will reduce both the risk and return and the aggressive one will have the opposite impact.Originality/valueIt recommends accountants to be in professional stage and increase the profitability of the company to grab both accounting and finance information and skills.

scholarly journals Working capital management and SMEs profitability: Portuguese evidence

2015 ◽  
Vol 11 (3) ◽  
pp. 341-358 ◽  
Author(s):  
Maria Amélia Pais ◽  
Paulo Miguel Gama
Keyword(s):  
Fixed Effects ◽  
Good Practice ◽  
Optimal Level ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Specific Effects ◽  
Panel Regressions ◽  
Management Characteristic

Purpose – The purpose of this paper is to provide empirical evidence on the effects of working capital management on the profitability of small and medium-sized Portuguese firms. Design/methodology/approach – Panel regressions (fixed effects) and instrumental variables were used to model a sample of 6,063 Portuguese small and medium-sized firms (SMEs), covering the time period 2002-2009. Also, industry-demeaned values and industry-specific dummy variables allow for industry-specific effects robustness tests. Findings – Results indicate that a reduction in the inventories held and in the number of days that firms take to settle their commercial liabilities and to collect payments from its customers are associated to higher corporate profitability. Similar results are obtained when industry-specific effects are controlled, supporting the robustness of the previous analysis. The relevance of quadratic dependences of the profitability on some variables was also identified and suggests a decreasing trend of return on assets with increasing values of the working capital management characteristic variables. Practical implications – The practice of more aggressive working capital management policies increase firms’ profitability. Moreover, the importance of a good practice in working capital management is stressed by the evidence suggesting the existence of an optimal level for the working capital components. Originality/value – The consensus that SMEs play a crucial role in the development of the national economy, the lack of published industry wide studies of this type for the case of Portugal, justifies the importance of the present study.

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.

A systematic literature review on working capital management – an identification of new avenues

2019 ◽  
Vol 11 (3) ◽  
pp. 352-366 ◽  
Author(s):  
Umar Nawaz Kayani ◽  
Tracy-Anne De Silva ◽  
Christopher Gan
Keyword(s):  
Literature Review ◽  
Systematic Literature Review ◽  
Empirical Relationship ◽  
Deep Understanding ◽  
Future Research ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Behavioural Aspects

Purpose This paper aims to provide a review of the existing literature available on working capital (WC) and working capital management (WCM). Design/methodology/approach A systematic literature review (SLR) methodology is used to review 187 articles selected from referred journals, books and international conferences for the period 1980-2017. Findings This comprehensive review reveals that much of the focus in the existing literature is paid on investigating the empirical relationship between WCM and firm performance. Furthermore, the attention has been paid towards studying the WC practices. The behavioural aspects, qualitative studies, survey studies and systematic theory development have been ignored in most of the prior studies. These areas have a broader scope for future research. Research limitations/implications This study is based on literature review and theoretical in nature. Therefore, it does not have any empirical results. Practical implications So far, a limited literature review studies have been conducted in WCM perspective. This review provides various emerging trends, which may be considered in future research for providing a deep understanding of WCM. Originality/value This is the first time a detailed review of WCM literature has been conducted by using SLR for the period of 1980-2017. This review will be useful for researchers, business policymaker, finance professionals and all other having direct or indirect concerns with WCM study.

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.

Current assets management of small enterprises

2015 ◽  
Vol 42 (4) ◽  
pp. 549-560 ◽  
Author(s):  
Haitham Nobanee ◽  
Jaya Abraham
Keyword(s):  
New York ◽  
Small Firms ◽  
Stock Exchange ◽  
Dynamic Panel Data ◽  
Method Of Moment ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Trade Cycle ◽  
Content Type

Purpose – The purpose of this paper is to investigate the relationship between a firm’s net trade cycle, its size and liquidity. Design/methodology/approach – The relation between the firm’s net trade cycle and its liquidity is examined using Generalized Method of Moment Dynamic Panel-Data System Estimation with Robust Standard Errors for a sample of 5,802 US non-financial firms listed in the New York Stock Exchange, American Stock Exchange, NASDAQ Stock Market and Over the Counter Market for the period 1990-2004 (87,030 firm-year observations). The analysis is applied at the levels of the full sample and divisions of the sample by size. Findings – The results show negative and significant relationship between net trade cycle, as a comprehensive measure of efficiency in working capital management, and liquidity for small firms. Originality/value – Most of the existing literature focusses on the large firm’s experience of working capital management. Small firms generally face liquidity problems and have limited access to external capital, and studies on their efficiency in working capital management are scant. Thus the present study is useful in understanding the relation between the firm’s net trade cycle and liquidity of small firms.

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