Working Capital Policy for Wholesale Trade Companies

2020 ◽  
Vol 2020 (3) ◽  
pp. 78-105
Author(s):  
Svetlana Makarova ◽  
Elena Ermakova
Keyword(s):  
Retail Trade ◽  
Strong Impact ◽  
Capital Management ◽  
Working Capital ◽  
Economic Sectors ◽  
Metal Production ◽  
Wholesale Trade ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
The Impact

This article contains a new approach to working capital management which influences significantly the profitability and liquidity of companies. The impact of working capital management on financial results is regarded mostly theoretically in Russian literature, while in numerous foreign articles empirical results are controversial. The article presents the empirical research on the basis of 8890 Russian wholesale trade companies over the period of 2014- 2018, which reveals a non-linear relation between the profitability and cash conversion cycle. Similar relation is also revealed for 2290 Russian retail companies, 2320 Russian metal production companies and 1760 construction companies. As a result, we proved the existence of such a cash conversion cycle which provides maximum profitability for different economic sectors. This cash conversion cycle equals 19 days for wholesale trade, 9 days for retail trade, 38 days for construction and 43 for metal production. Moreover, the formula of cash conversion cycle is modified to show how the desired cash conversion cycle may be achieved. This formula demonstrates a strong impact of working capital policy on cash conversion cycle and proves the importance of coherent working capital policy. The results may be useful in the working capital management to provide an increase in profitability combined with maintenance of chosen liquidity level.

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 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 Working Capital Management (WCM) and Firm Performance in Emerging Markets: A Case of Bangladesh

2021 ◽  
Vol 10 (1) ◽  
pp. 36
Author(s):  
Rafiqul Bhuyan ◽  
Mohammad Sogir Hossain Khandoker ◽  
Noshin Tasneem ◽  
Mahjuja Taznin
Keyword(s):  
Stock Exchange ◽  
Secondary Data ◽  
Total Asset ◽  
Capital Management ◽  
Working Capital ◽  
Return On Assets ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
Current Asset ◽  
The Impact

We examine the impact of efficient working capital management on market value and profitability. Using secondary data on selected firms from Dhaka Stock Exchange we explore the effects of various working capital components (i.e. cash conversion cycle (CCC), current ratio (CR), current asset to total asset ratio (CATAR), current liabilities to total asset ratio (CLTAR), debt to asset ratio (DTAR), siz,e and growth) to the firm’s performance by looking firm’s value i.e. Tobin’s Q (TQ) and profitability i.e. return on asset (ROA) and return on invested capital (ROIC). Our results show that, for both food and overall manufacturing sectors, there is a significant association between working capital variables and firm’s value & return on assets, but an insignificant association with return on invested capital.

scholarly journals Working Capital Management and the Profitability of Non- Financial Firms Listed on the Zimbabwe Stock Exchange (ZSE)

2014 ◽  
Vol 9 (1) ◽  
Author(s):  
Walter Gachira ◽  
Washington Chiwanzwa ◽  
Dingilizwe Jacob Nkomo ◽  
Runesu Chikore
Keyword(s):  
Firm Value ◽  
Positive Relationship ◽  
Stock Exchange ◽  
Negative Relationship ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Financial Firms ◽  
Cash Conversion Cycle ◽  
The Impact

Working capital is essential for the day-to-day operations of a firm. The study examines the impact of working capital management on the profitability of non-financial firms listed on the Zimbabwe Stock Exchange (ZSE). Using panel data methodology, the direction and extent of the impact of working capital management on profitability is scrutinised. The regression analysis is based on a panel sample of 39 non-financial firms listed on the ZSE from 2009 to 2013, the period under which the Zimbabwean economy has been operating under the multicurrency system. It was found that there is a positive relationship between debtors’ days and firm’s profitability, a negative relationship between creditors’ days and profitability and a positive relationship between firm’s cash conversion cycle and its profitability. There is some negative relationship between current ratio and profitability, while inventory turnover days and profitability are positively related. Debt to asset ratio as a control variable has a significant negative relationship with firm value and profitability. The results of the study show that for the companies included in the sample, there are mixed effects of the components of working capital on firm performance. Managers can thus create value for shareholders by taking note of the existence of such relationships and take measures that enhance firm profitability.

scholarly journals The Impact of Working Capital Management on Profitability of Petroleum Retail Firms: Empirical Evidence from Ghana

2016 ◽  
Vol 8 (6) ◽  
pp. 49 ◽  
Author(s):  
Joseph Mbawuni ◽  
Mercy Hawa Mbawuni ◽  
Simon Gyasi Nimako
Keyword(s):  
Descriptive Analysis ◽  
Annual Reports ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Conservative Strategy ◽  
Cash Conversion Cycle ◽  
Correlation And Regression Analysis ◽  
Managerial Implications ◽  
The Impact

<p>The study examined the impact of working capital management (WCM) on the profitability of petroleum retail firms (PRFs) in Ghana over a six year period (2008-2013). Audited annual reports from a sample of five selected petroleum retail firms in Ghana are employed in the study. Using, descriptive analysis, correlation and regression analysis, the results indicate that, in the PRFs in Ghana, there is favourable net working capital for the firms and a favourable networking capital to total assets ratio. The most important WCM component that drives the firm’s profitability, measured in return on assets (ROA), is average days payable (ADP). The rest of WCM components, cash conversion cycle (CCC), average days inventory (ADI) and average days receivables (ADR) did not have significant relationship with profitability. The study further found that WCM practices among the five selected PRFs support the conservative strategy of WCM, rather than an aggressive WCM strategy. Theoretical and managerial implications are discussed.<br /><br /></p>

scholarly journals The Impact of Working Capital Management on the performance of Listed Firms: Evidence of an Emerging Economy

2021 ◽  
Vol 12 (1) ◽  
pp. 389-407
Author(s):  
Ronald Essel ◽  
Joyce Brobbey
Keyword(s):  
Emerging Economy ◽  
Method Of Moment ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Listed Firms ◽  
Cash Conversion Cycle ◽  
Positive Direct ◽  
And Control ◽  
The Impact

The aim/purpose of this scientific inquiry is to empirically examine the impact of working capital management (WCM) [cash conversion cycle (CCC), number of days inventory (INV), number of days account receivable (AR), number of days account payable (AP)] and control variables [sales growth (GROW), size (SIZE), leverage (LEV), current ratio (CR) fixed financial assets to total assets (FFA)] on firm performance (FP) [ROA, Tobin’s Q (TQ)] in the context of an emerging economy, Ghana. The research used a dynamic panel System of Generalized Method of Moment (GMM) to test the hypotheses. Utilizing financial data extracted from final accounts of 36 listed companies, spanning 2010-2019, the study examined WCM-performance-nexuses by following the methodologies of researchers/scholars in extant literature. Findings/Results indicates that, whilst INV, AR, LEV demonstrated negative/inverse/indirect associations with FP; AP, GROW, SIZE, CR, FFA depicted positive/direct associations with FP. CCC however, exhibited a quadratic concave relationship with ROA.

scholarly journals The effect of working capital management on profitability

2020 ◽  
Vol 9 (6) ◽  
pp. 114-122
Author(s):  
Tarik Hossain
Keyword(s):  
Negative Relationship ◽  
Ordinary Least Squares ◽  
Manufacturing Companies ◽  
Capital Management ◽  
Working Capital ◽  
Manufacturing Firm ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
Collection Period ◽  
The Impact

This research aims to analyze the impact of efficient working capital management on the profitability of the manufacturing firm in Bangladesh. Fifty-two manufacturing companies listed with Dhaka Stock Exchange (DSE) have been selected randomly from 2012 to 2017. Return on Assets (ROA) and Return on Equity (ROE) are used as indicators of profitability, while the inventory conversion period (ICP), the average collection period (ACP), the average payment period (APP), and the Cash Conversion Cycle (CCC) are used as the independent variables which are used as a measurement of working capital management of the firm. Ordinary Least Squares regression models and Pearson's Correlation are used to establish the relationship between working capital management and profitability. The results revealed a significant negative relation between ROA and CCC, ACP; a significant negative relationship exists between ROE and CCC, APP. Manufacturing companies can increase profitability by decreasing the cash conversion cycle, average payment period, and average collection period. It also revealed that ICP is also positively related to ROA and ROE. Therefore, this research concludes that efficiently and effectively managing working capital is very important for increasing manufacturing companies' profitability.

scholarly journals The Effect of Working Capital Management on Dividend Policy: An Empirical Analysis of Listed Firms in Ghana

2020 ◽  
Vol 6 (1) ◽  
Author(s):  
I.N Yakubu
Keyword(s):  
Firm Growth ◽  
Dividend Policy ◽  
Management Practices ◽  
Ordinary Least Squares ◽  
Capital Management ◽  
Working Capital ◽  
Working Capital Management ◽  
Financial Firms ◽  
Cash Conversion Cycle ◽  
The Impact

Relying on more recent data spanning 2007-2016, this paper investigates the impact of working capital management (WCM) on dividend policy of listed non-financial firms in Ghana. Specifically, the study assesses the effect of cash conversion cycle (CCC), days inventory outstanding (DIO), profitability, and firm growth on dividend policy. Employing the ordinary least squares (OLS) analytical technique, the findings reported that working capital management (in terms of cash conversion cycle and days inventory outstanding) and dividend policy are positively related, with DIO having a significant effect on dividend policy. The results also established a positive association between the control variables (profitability and firm growth) and dividend policy albeit insignificantly. Based on the findings, the study concludes that working capital management in terms of days inventory outstanding (DIO) is a critical factor influencing firms’ dividend policy decisions.  The study extends the inconclusive empirical evidence on the determinants of dividend policy and fills the lacuna in existing literature by focusing on how working capital management practices influence dividend policy of firms in Ghana. The findings are also useful to the board of directors of non-financial firms in deciding an appropriate dividend policy, and to the shareholders in making investment decisions. 

The Impact of Working Capital Management on Firm Operational Performance Through Business Cycles

2021 ◽  
pp. 199-217
Author(s):  
Inês Lisboa ◽  
Nuno Miguel Teixeira
Keyword(s):  
Economic Growth ◽  
Business Cycles ◽  
Economic Downturn ◽  
Capital Management ◽  
Working Capital ◽  
Return On Assets ◽  
Working Capital Management ◽  
Cash Conversion Cycle ◽  
International Financial Crisis ◽  
The Impact

This chapter aims to analyze the impact of working capital management on firm's profitability, considering economic downturn and boom periods. Analyzing Portuguese firms from 2006-2019 results show that cash conversion cycle, as well as days sales outstanding, days sales inventories, and days payment outstanding decreased after 2009 due to the international financial crisis. When the length of cash conversion cycle increases, firm return on assets also increases. This situation happens especially in recession periods, when sales decrease. Results also exhibit singularities across industries. In some sectors, the impact of working capital management in firm return is positive, while in industries with greater cash conversion periods, the impact is negative. The findings also reveal the impact of financial debt and economic growth on operational profitability. Managers need to focus on short-term financing practices to increase firm profits and create value.

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.

Sign in / Sign up

Export Citation Format

Share Document