scholarly journals The impact of Working Capital Management on firm profitability in different economic cycles: Evidence from the United Kingdom

2018 ◽  
Vol 7 (2) ◽  
pp. 70 ◽  
Author(s):  
Tiago Gonçalves ◽  
Cristina Gaio ◽  
Frederico Robles
Keyword(s):  
Positive Impact ◽  
Economic Conditions ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Economic Cycles ◽  
The United Kingdom ◽  
Economic Downturns ◽  
The Impact ◽  
The Relationship

Literature shows that Working Capital Management (WCM) affects profitability and liquidity. Economic conditions may stress those relationships, especially during economic downturns. We analyze the effects of economic cycle on the relationship between WCM and profitability, using a sample of UK unlisted companies between 2006 and 2014. We find that WCM efficiency increases profitability. This positive impact is even more important during economic downturns. Our results show multi-level effects of WCM on profitability and liquidity constraints, with varying economic conditions. Results matter economically and managerially and highlight the importance of considering WCM as part of overall corporate financial strategy.

Working capital management, firm performance and nature of business

2020 ◽  
Vol 70 (1) ◽  
pp. 179-200
Author(s):  
Kumar Sanjay Sawarni ◽  
Sivasankaran Narayanasamy ◽  
Kanagaraj Ayyalusamy
Keyword(s):  
Firm Performance ◽  
Firm Value ◽  
Regression Models ◽  
Age And Growth ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
The Impact ◽  
The Relationship

PurposeThis paper aims to investigate the impact of the efficiency of working capital management (WCM) on the performance of a sample of Indian companies and explore how the nature of the firm's business influences the significance and direction of this impact.Design/methodology/approachThe data for this study were collected for the period of 2012–2018 for 414 non-financial firms listed on the Bombay Stock exchange. Fixed-effect regression models were run by taking Tobin's Q and return on equity (ROE) as dependent variables, and net trade cycle (NTC) and its components as explanatory variables in the presence of liquidity, leverage, size, age and growth as control variables. Sample firms were segregated into manufacturing, trading and service groups, and regression models were used for all the groups to understand the effect of the nature of a firm's business.FindingsWCM efficiency has a significant impact on the performance of the sample firms. Non-financial Indian firms deliver better financial performance by maintaining lower NTC. Like NTC, its components also impact firm value and profitability. The results report that the significance of the relationship varies depending upon the nature of the firm's business.Originality/valueThe previous research studies had not used a sample of large number of Indian firms. Unlike previous studies, this study reports the influence of the nature of business on the relationship between WCM and firm performance. Further, this paper also examines how the individual components of working capital influence the performance of Indian firms.

Working Capital Management and Firms' Profitability in the Midst of an Economic Crisis

2018 ◽  
Vol 5 (2) ◽  
pp. 66-80
Author(s):  
Dimitris Axiotis ◽  
Alina Hyz ◽  
Petros Kalantonis
Keyword(s):  
Economic Crisis ◽  
Financial Constraints ◽  
Negative Relationship ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
Size Growth ◽  
The Impact ◽  
The Relationship

The purpose of this article is to identify the relationship between working capital management and corporate performance in adverse economic circumstances. The results show positive relationship between profitability and cash conversion cycle, firm's size, growth and leverage and negative relationship between profitability and components of cash conversion cycle. Analysing the impact of the crisis it can observe that the companies can increase their profitability by reducing the period of credit granted to customers. The significance of this study stems from the fact that it sheds light for the desirable firms' policy during the period of financial constraints. Prior research on this subject has looked into various issues related to the linkage between working capital management and profitability, however, none has examined what this relationship looks like following a prolonged economic crisis.

Economic downturns and working capital management practices: a qualitative enquiry

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sunday Simon ◽  
Norfaiezah Sawandi ◽  
Satish Kumar ◽  
Magdi El-Bannany
Keyword(s):  
Interest Rates ◽  
Management Practices ◽  
Trade Credit ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
Economic Downturns ◽  
Operational Activities ◽  
The Impact

Purpose This study aims to explore changes in working capital management (WCM) practices in response to economic downturns, especially during the coronavirus pandemic. Design/methodology/approach This study adopts an interpretative approach. This paper used semi-structured interviews with 2 finance directors and 13 top managers for data collection. This paper used thematic analysis for analysing the interview data. Findings The study findings suggest that the traditional ways of managing working capital may no longer be sufficient during a crisis. Instead, dynamic financing, trade credit policy and continuous staff training to develop new skills are alternative WCM practices to navigate the challenges of a crisis. Further, this paper finds that economic conditions, such as inflation rates, interest rates, exchange rates and government policy, negatively affect WCM. Practical implications The study findings highlight practical issues that may help firms meet their present and future financing needs, manage their day-to-day operational activities and enhance performance, both operational and financial. The study is beneficial for regulators in understanding a firm’s constraints during crises and respond appropriately. Originality/value This is the first study, to the best of the knowledge that uses a qualitative approach to investigate the impact of economic downturns on WCM practices of firms. Thus, this study offers new insights into the fundamentals of WCM practices during crises.

scholarly journals Working Capital Management and Its Impact on Firms’ Performance: An Empirical Analysis on Ethiopian Exporters

2021 ◽  
Vol 2021 ◽  
pp. 1-10
Author(s):  
Fekadu Agmas Wassie
Keyword(s):  
Return On Investment ◽  
Positive Impact ◽  
Multiple Linear Regression Model ◽  
High Volume ◽  
Capital Management ◽  
Working Capital ◽  
Return On Assets ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
The Impact

Companies may have their level of optimal working capital that maximizes their values through the effective management of current liabilities and assets. Previously, many studies were made on the impact of working capital management on the company’s performance in different sectors; however, its impact on the performance of firms that are engaged in export activities was not given any consideration and this particular study has attempted to investigate the fundamental impact of working capital management on the export firm’s performance in Ethiopia. To analyze this particular study, a total of 164 exporters operating in Ethiopia have been taken as a sample and both primary and secondary data collection methods were used. The data gathered from the sample of the study were analyzed using a multiple linear regression model and the result reveals that working capital management which was measured by account receivables period, cash conversion cycle, and accounts payable period has a statistically significant and positive correlation with the performance of exporting firms in Ethiopia which was measured by both return on assets and return on investment. However, working capital management which was measured by the inventory conversion period has a statistically significant and positive impact on return on investment, but it has an insignificant impact on the performance of sampled export firms in Ethiopia which was measured by return on assets. Based on the result of the study, firms may need to extend credit terms for customers, may prolong their cash conversion cycle, may need an extended payment period, and may or may not hold a high volume of inventory. All extending periods and cycles shall be made up to the extent of attaining an optimal level of working capital and better to implement a conservative policy of working capital management. Thus, it is advisable to consider the result of this study while making decisions regarding their working capital management to support their performance.

Working capital management, firm performance and financial constraints

2017 ◽  
Vol 9 (3) ◽  
pp. 206-219 ◽  
Author(s):  
Nufazil Altaf ◽  
Farooq Shah
Keyword(s):  
Firm Performance ◽  
Method Of Moments ◽  
Financial Constraints ◽  
Generalized Method Of Moments ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Content Type ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to examine the relationship between working capital management and firm performance for a sample of 437 non-financial Indian companies. In addition, this paper examines the impact of financial constraints on working capital management-performance relationship. Design/methodology/approach This study is based on secondary financial data of 437 non-financial Indian companies obtained from CAPITALINE database, pertaining to a period of ten years. This study employs the two-step generalized method of moments (GMM) technique to arrive at results. Findings Results of the study confirm the inverted U-shape relationship between working capital management and firm performance. In addition, the authors also found that the firms that are likely to be more financially constrained have lower optimal working levels. Originality/value Unlike prior studies, which found a linear relationship between working capital management and firm performance, this study provides newer evidence for an inverted U-shaped relation between investment in working capital and firm performance in India. In addition, this study also tests the impact of financial constraints on this relationship. In contrast to the prior studies, this study uses GMM to control the potential problems of endogeneity.

Impact of Working Capital Management on Firm’s Profitability & Liquidity: An Empirical Study of TATA Motors Pvt. Ltd.

2016 ◽  
Vol 6 (1) ◽  
Author(s):  
Priyank Sharma
Keyword(s):  
Empirical Study ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
The Impact

Working capital is the funds required for the day to day working of any organization. So it should be managed in effective way to ensure profitability, solvency and survival of the company. Every organization has to manage its working capital in such a way that it does not result in blockage of funds and is able to cater the needs of the organization. In this paper I have tried to show the impact of the mismanagement of working capital on profitability and liquidity of the firm. For this purpose I have taken Tata Motors Pvt. Ltd for the s

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

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 ◽  
Working Capital Management ◽  
Listed Firms ◽  
Firm Profitability ◽  
Break Even Point ◽  
The Impact

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.

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 Study on Working capital Management in Hindustan Petroleum Corporation Limited

2021 ◽  
pp. 164-168
Author(s):  
Sruthi B ◽  
Rashmi R
Keyword(s):  
Annual Report ◽  
Pearson Correlation ◽  
Secondary Data ◽  
Effective Management ◽  
Capital Management ◽  
Working Capital ◽  
Short Term ◽  
Working Capital Management ◽  
The Past ◽  
The Relationship

Working capital management is important for every organization as it refers to the effective management of current assets and current liabilities. The aim is to make sure that the firm is capable to continue its operations and it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. In this paper, an attempt has been made to study the management of working capital in Hindustan Petroleum Corporation Limited, a leading public sector enterprise in India over a period of 10 years (That is from 2009-10 to 2018-19). The paper also attempts to study the components of working capital and analyze the relationship between liquidity and profitability of HPCL. The study is based on secondary data collected from annual report of HPCL for the past 10 years, Pearson correlation and regression model are used for this purpose. From the study it is found that there is a significant relationship between liquidity and profitability.

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