Do Working Capital Decision and Efficiency of Working Capital Management Contribute to the Profitability? Evidence from Bangladesh

Listed Firms ◽

Operating Profit ◽

Significant Negative Impact

This study attempts to explore how working capital decision, that is, aggressive investment and finance decision and efficiency of the working capital management (WCM) contribute to the profitability operationalised by gross operating profit (GOP) and return on assets of listed manufacturing firms in Bangladesh. To investigate this relationship, the study has taken into consideration of 468 sample observations from 108 listed firms covering the year from 2013 to 2017. This study finds that aggressive investment and finance decision significantly contribute to the profitability of the firm. Besides, the efficiency of WCM has significant impact on the profitability. In addition, the constructs of efficiency of WCM—that is, days in inventory outstanding, days in sales outstanding—has significant negative impact on the profitability of the firm. Unfortunately, this study finds no significant impact of days in payables outstanding on firm’s profitability.

THE EFFECTS OF WORKING CAPITAL MANAGEMENT ON THE PROFITABILITY OF NIGERIAN MANUFACTURING FIRMS

Journal of Business Economics and Management ◽

10.3846/16111699.2011.651626 ◽

2013 ◽

Vol 14 (3) ◽

pp. 520-534 ◽

Cited By ~ 10

Author(s):

Omo Aregbeyen

Keyword(s):

Stock Exchange ◽

Manufacturing Firms ◽

Capital Management ◽

Working Capital ◽

Return On Assets ◽

Operating Income ◽

Cash Conversion Cycle ◽

Operating Profit ◽

Inventory Turnover

The efficiency of working capital management (WCM) has implications for firms’profitability. This paper empirically investigates the effects of WCM on the profitability of a sample of 48 large manufacturing firms quoted on the Nigerian Stock Exchange (NSE) for the period 1993 to 2005. It is aimed at filling the gaps in a previous study and contribute to expanding and enriching the literature particularly on Nigeria and at large. The analysis examined the responses of the firms’ profitability to WCM and a number of augmenting factors. Profitability was alternatively measured by gross operating profit (GOI), net operating income (NOI) and return on assets (ROA). Likewise, WCM was measured by the average collection period (ACP), average pay period (APP), inventory turnover days (ITID) and comprehensively by the cash conversion cycle (CCC). The results indicate that the firms’ have been inefficient with WCM and caused significant reductions in profitability. The paper concludes that improving the efficiency of WCM is essential and recommends that manufacturing firms in Nigeria should shorten the ACP, APP, ITID and reduce their CCCs.

Impact of Working Capital Management on Financial Performance of Firms: Evidence from Pakistani Firms

Sukkur IBA Journal of Management and Business ◽

10.30537/sijmb.v5i2.346 ◽

2019 ◽

Vol 5 (2) ◽

pp. 24

Author(s):

Sarfaraz Bhutto ◽

Zulfiqar Ali Rajper ◽

Riaz Ahmed Mangi ◽

Ikhtiar Ali Ghumro

Keyword(s):

Financial Performance ◽

Multiple Regression ◽

Negative Impact ◽

Positive Impact ◽

Stock Exchange ◽

Manufacturing Firms ◽

Capital Management ◽

Working Capital ◽

Independent Variable

This study aims to investigate the impact of working capital management on the financial performance of firms. We have taken non-financial sector which is listed in Pakistan stock exchange (PSX) over the period of 2010 to 2015. We have sampled 50 firms listed is PSX. The secondary data is being collected from the publication of State bank of Pakistan (SBP) “Financial Statement analyses of Non-financial sector listed in Pakistan stock exchange 2010-2015”. Furthermore, we have used purposive sampling method to choose the selective firms in manufacturing industry of Pakistan. Moreover, Pearson correlation and multiple regression are used as data analyses techniques. The study variables consist working capital management as independent variable and financial performance as dependent variable. We have used proxies to compute independent variable like Average payment period (APP), inventory turnover (ITO), cash conversion cycle (CCC) and average collection period (ACP). Moreover, financial performance (dependent variable) measured as earnings per share (EPS), return on equity (ROE) and return on assets (ROA). It is observed in the results that there is significant and negative impact of APP and ITO on ROA but two independent variables CCC and ACP have significant and positive impact on ROA. Moreover, it is found that CCC, APP and ITO have significant and negative impact on ROE and EPS respectively. Lastly, it is observed that ACP has a significant and positive impact on ROE and EPS. The results of multiple regression investigated that the financial performance of Pakistani manufacturing firms is consistent with WCM. This study supports in managing the working capital requirements to boost firm performance in general. Moreover, specifically in the context of Pakistani manufacturing firms the study implications are significant in expansion and betterment of financial performance of firms

Effect of Firm Characteristics on Working Capital Management of Manufacturing Firms in Amhara Ethiopia

Parikalpana KIIT Journal of Management ◽

10.23862/kiit-parikalpana/2019/v15/i1-2/190170 ◽

2019 ◽

Vol 15 (1&2) ◽

pp. 9

Author(s):

Yeshi Hailu Sisay ◽

Robindro Singh Nongmaithem

Keyword(s):

Manufacturing Firms ◽

Firm Characteristics ◽

Capital Management ◽

Working Capital ◽

Working Capital Management

The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms

Journal of Risk and Financial Management ◽

10.3390/jrfm14010009 ◽

2020 ◽

Vol 14 (1) ◽

pp. 9

Author(s):

Sorin Anton ◽

Anca Afloarei Nucu

Keyword(s):

Empirical Evidence ◽

Ordinary Least Squares ◽

Optimum Level ◽

Capital Management ◽

Working Capital ◽

Listed Firms ◽

Firm Profitability ◽

Break Even Point ◽

The purpose of this study is to investigate the relationship between working capital and firm profitability for a sample of 719 Polish listed firms over the period of 2007–2016. The scarcity of empirical evidence for emerging economies and the importance of working capital efficiency motivate the research on the working capital–financial performance relationship. The paper adopts a quantitative approach using different panel data techniques (ordinary least squares, fixed effects, and panel-corrected standard errors models). The empirical results report an inverted U-shape relationship between working capital level and firm profitability, meaning that working capital has a positive effect on the profitability of Polish firms to a break-even point (optimum level). After the break-even point, working capital starts to negatively affect firm profitability. The study brings theoretical and practical contributions. It extends and complements the literature on the field by highlighting new evidence on the non-linear interrelation between working capital management (WCM) and corporate performance in Poland. From the practitioners’ perspective, the results highlight the importance of WCM for firm profitability.

Impact of Working Capital Management on Corporate Profitability- Empirical Evidence from Pharmaceutical Industry of Bangladesh

International Journal of Economics and Finance ◽

10.5539/ijef.v10n9p136 ◽

2018 ◽

Vol 10 (9) ◽

pp. 136

Author(s):

Rakibul Islam ◽

Mohammad Emdad Hossain ◽

Mohammad Nazmul Hoq ◽

Md. Morshedul Alam

Keyword(s):

Regression Analysis ◽

Correlation Matrix ◽

Negative Impact ◽

Pearson Correlation ◽

Capital Management ◽

Working Capital ◽

Data Set ◽

Pharmaceutical Firms ◽

Working capital management plays centric role in enhancing operational efficiency and their ultimate profitability. Globally financial managers have been searching the proper way on how to utilize working capital components which prolong profitability. The purpose of this study is to assess the impact of working capital components on profitability indicators of selected pharmaceutical firms in Bangladesh. The paper used financial data of 9 pharmaceutical firms listed in Dhaka stock exchange (DSE) covered 2011-2015. Two methods were used in this study for analysis data set. Firstly, to measure the relationship between selected variables Pearson Correlation matrix was used. Secondly, multiple regression analysis was used to investigate the impact working capital components on profitability of selected pharmaceutical firms. The study also conducted Durbin Watson test to assess autocorrelation of selected variables. In this study the correlation matrix identified a negative correlation between working capital components and profitability, whereas regression analysis found number of days account receivable (AR) had significant positive and current ratio (CR) and debt ratio (DR) had appeared a significant negative impact on profitability.

Goal Programming Model for Optimizing Working Capital Management: Case of Tire Retreading Company

Journal of Operations and Strategic Planning ◽

10.1177/2516600x18801435 ◽

2018 ◽

Vol 1 (2) ◽

pp. 148-167

Author(s):

Arunkumar O. N. ◽

Divya D. ◽

Tony Mathew

Keyword(s):

Goal Programming ◽

Programming Model ◽

Significance Test ◽

Capital Management ◽

Working Capital ◽

Return On Assets ◽

Goal Programming Model ◽

Past Data ◽

Year 2013

This article discusses goal programming model for optimizing working capital management (WCM) of a tire manufacturing company. The mathematical model is run for the years 2008–2009 to 2012–2013 and values of the respective goals are taken from it. The validation for the model values with the actual values from the financial data are carried out to check the significance of the model values. The significance test is carried out in one sample t-test. It is observed that all the values got from the model are significant. The sales of the company for the year 2013–2014 is forecasted from the past data by linear regression using Microsoft Excel as a trend line. The model is used to 2analyze the values of variables of WCM for the year 2013–2014 to achieve a 30 percent return on assets (ROA) for the forecasted sales.

Impact of working capital management on profitability: Evidence from Pakistan oil sector

International Journal of Accounting and Financial Reporting ◽

10.5296/ijafr.v5i1.7825 ◽

2015 ◽

Vol 1 (1) ◽

pp. 286

Author(s):

M.Yousaf Raza ◽

Muhammad Bashir ◽

Khalid Latif ◽

Touqeer Sultan Shah ◽

Mushtaq Ahmed

Keyword(s):

Financial Management ◽

Capital Budgeting ◽

Capital Management ◽

Working Capital ◽

Operating Profit ◽

Work In Process ◽

Fixed Assets ◽

Oil Sector ◽

This study explores the impact of working capital management on the profitability of the firms in the oil sector of Pakistan. For the purpose of testing this relationship data from the annual reports of the sample companies is used from the period 2006 to 2010. Cash conversion cycles (CCC), average receivable, Average inventory, average payable, and current ratio are used as a measure of working capital management, while gross operating profit is used as a measure of profitability of the firm. There are three major issues in financial management that are capital budgeting, capital structure, and working capital management. So working capital management is one of the three major issues in financial management. A commercial firm consists of two types of assets, which are fixed assets and current assets. Current assets of a firm consist of cash, bank balance, account receivable, raw material, work in process, and finished goods. While fixed assets of the business require capital expenditure and these are used in increasing the production of the business, the Current assets are used in utilizing the fixed assets in day to day transactions. Hence Current assets are regarded as lifeblood for any business firm, the play vital role in the daily operations of the business. Current assets and current liabilities regarded as are very important component of total assets and they need to be carefully managed for the long term success of the business. In this paper working capital management provide us profit by using average payable and gross operating profit but other variables in hypothesis shows negative relationships with each other.

Efficiency of Working Capital Management and Profitability: Evidence from Manufacturing Firms of Nepal

Management Dynamics ◽

10.3126/md.v22i1.30236 ◽

2019 ◽

Vol 22 (1) ◽

pp. 21-34

Author(s):

Pitambar Lamichhane

Keyword(s):

Comparative Research ◽

Manufacturing Firms ◽

Fiscal Year ◽

Regression Result ◽

Capital Management ◽

Working Capital ◽

Current Ratio ◽

Explanatory Variables ◽

Dependent Variables

This paper analyzes efficiency of working capital management (EWCM) and its influence on profitability of manufacturing firms in Nepal for the fiscal year 2005/06 to 2017/18 using descriptive and causal comparative research design. Net trade cycle (NTC) is used to measure EWCM. Profitability on assets (PA) and profitability on sales (PS) are dependent variables of this study. The EWCM related variables such as Net trading cycle (NTC), current ratio (CR) and debt to assets ratio (DR) are considered as explanatory variables. Result of this paper reveals both profitability on assets and profitability on sales are inversely related with NTC which implies that lower NTC increases profitability of manufacturing firms in Nepal. Further, regression result of this paper confirms that debt to assets ratio has negative and statistically significant effect on profitability on total assets and profitability on sales. The finding of this paper concludes that less uses of debt increases the profitability of manufacturing firms in Nepal.

Cash Conversion Cycle and Profitability, Evidence from Jordan

Asian Journal of Finance & Accounting ◽

10.5296/ajfa.v11i2.15640 ◽

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 ◽

Cash Conversion Cycle ◽

Amman Stock Exchange ◽

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.