The impact of working capital management on firm profitability and fixed investment in pakistan abstract the research is done with a purpose of increasing knowledge about the importance of working capital management. The primary aim of the study is to assess the impact of working capital management on the psos profitability. Working capital management efficiency is vital especially for manufacturing firms, where a major part of assets is composed of current assets 1. The effect of working capital management on firms profitability core. Working capital management and its impact on firms. Anova analysis is done to study the impact of working capital management on profitability. The primary objective of this research was to test the effects of working capital management on profitability. The working capital management has implications on the firms profitability and risk as well as its value. Pdf effect of working capital management on profitability. The working capital management plays an important role for success or failure of firm in business because of its effect on firms profitability as well on liquidity. Using a sample of 30 uk firms and employing the pearson correlation data analysis technique, the study confirms a significantly negative association between profitability and working capital management variables.
Increase in com pany profitabiliy by reducing the liquidity of the company. For example, akinyomi, 2016 investigated the effect of cash management on profitability of nigerian manufacturing firms. Therefore, the present article tries to examine the impact of working capital management on profitability of the firms of indian steel industry. Return on assets roa is used as dependent variable while different.
A case from food sector of pakistan sundas zafar1, muhammad nazam2, adeela hanif3, iqra almas4 and noreen sana5 1 department of business administration, university of sargodha, sargodha, pakistan. The dimensions of working capital management included in this research which is quick ratios, current ratios c. Working capital management plays a significant role in improved profitability of firms. Working capital management wcm has its impact on profitability as well as liquidity of the company and the primary goal of a company is to increase the annual revenues. Agyei, and yeboah 2011 empirically studied working capital management and profitability of banks in ghana and mbawuni, mbawuni and mimako, 2016 analysed the impact of working capital management on profitability of. Almazari 20 investigated the impact of working capital management on profitability of cement manufacturing firms listed in the saudi stock exchange. Companies search for liquidity and operational efficiency through minimizing their investment in working capital.
Impact of working capital management on profitability a. Impact of working capital management on profitability and. Thus, a company needs to have a striking balance between the liquidity and the profitability. Thus, efficient working capital management is very important for smaller firms peel and wilson, 1996. Kargal and blue manthal 1994 state that the profitability and liquidity tradeoff is. Working capital management is important part in firm financial management decision. The objective of the current work is to provide empirical evidence about the effects of working capital management on profitability for a panel data of 48. Firms may have an optimal level of working capital that maximizes their value. Working capital management and its impact on firms performance asif iqbal phd scholar ocean university of china qingdao, p. Asaduzzaman and tabassum chowdhary 2014 have examined the nature and extent of the relationship between working capital management and profitability of bangladeshi textile. They argued that cash conversion cycle and inventory turnover significantly affect the operations of the firms.
The planning for adequate level of working capital needs a detail tradeoff between risk and return. Payable days, inventory days, cash conversion cycle, debt, and size of the firm. Thus, this study examined the impact of working capital management on firms. Effective working capital management and the profitability of quoted banks in nigeria dauda ibrahim adagye. This study analyses the working capital management efficiency of firms from telecommunication equipment industry. A research conduct on topic impact of working capital management on profitability of the food and personal care products sector in pakistan from above stated purpose, succeeding exact research questions were framed to investigate. Kushagra goel, finance faculty, asmsoc, nmims university, mumbai, india. In case the impact of working capital management on firm performance.
H2 there is positive impact of total assets on profitability of firm. The impact of working capital management on corporate. Firms can achieve optimal management of working capital by making the tradeoff between profitability and liquidity. The main purpose of this study is to empirically test the impact of working capital management on profitability. Working capital management wcm is an important corporate financial decision since it directly affects the liquidity and profitability of the firm. The regression analysis was calculated on a panel sample of 255 companies listed on the stock exchange of thailand from 2007 to 2009. Impact of working capital management on firm profitability. Abstract working capital is an important part of the capital of firm which helps to carry out day to day activities. To investigate this relationship between these two, the author collected secondary data from glaxo smith kline pharmaceutical company registered in. Impact of working capital management on performance 6 proceedings of 2nd international conference on business management isbn.
Effects of working capital management on firm performance. Empirical evidence from indian textile industry prof. Return on assets is used as a proxy of profitability. The aim of this study is to examine the impact of working capital management on firms performance for textile spinning companies in pakistan listed in kse. Impact of working capital management on the profitability of cooperative unions in east showa, ethiopia natarajan vallalnathan and getachew joriye department of cooperatives, institute of cooperatives and development studies, ambo university, ambo, post box no.
The results of this study revealed that there is no statistically significant relationship between cash conversion cycle measurements and profitability of firms. A panel data has been used in this study for 10 sample companies that cover the period of 7 years from 2008 to 2014. The impact of working capital management on corporate performance 6 concluded a negative relationship between them. Impact of working capital on the profitability a case of. This study will try to provide an understanding of how firms can manage their working capital in an optimal way during a crisis. The purpose of the study was to investigate the impact of working capital management on profitability.
Abdul and muhammad 2011 set out to examine the impact of working capital management on the profitability of the firm without compromising the liquidity of the firm. Working capital policies, working capital management, firm profitability, financial constraints, financial crisis, public listed firms, amsterdam stock. There are the possibilities of mismatch of current asset and current liability during this process. Using data for sixty five companies randomly selected from karachi stock exchange, and a set of. Empirical evidence from borsa istanbul find, read and cite all the. Pdf working capital management and firm profitability.
In pakistan, not touched or extremely small study has been completed in this region. This article examines the impact of working capital management on firms profitability within the context of pakistan sugar and leather companies. Various studies on listed firms in many countries have been performed to study impact of. Cash converison cycle which is used as a comprehensive measure for working capital management is found to have a significant and negative impact on firms profitability suggesting that a.
Working capital turnover ratio, collection period, return on asset, consumer product firms, malaysia 1. The efficient receivables management was found to have a positive impact on both working capital and profitability. Impact of working capital management on the performance of. Working capital is made by the three important factors, debtor, creditor and stock. Impact of working capital management on profitability in uk. Some of these studies related to our study are briefly presented in the following section in order to assess the research gap. Other variables that are used in this study are current ratio, debt to equity ratio, operating profit to debt ratio, and inventory turnover ratios of the firms. The evidence implies that firms may improve their profitability through efficient working capital management regarding the accounts receivable, inventory and. The purpose of this study was to explore the impact of working capital management wcm on firms performance and value for a sample of egyptian firms. Accordingly, the impact of working capital management on the firms profitability is tested by using panel data methodology. Impact of working capital management on firms profitability. Impact of working capital management on the profitability of. This study aims to find out the impact of working capital management on profitability.
The effect of working capital management on profitability in. In this paper we investigate the relationship between profitability and working. Working capital management and profitability of firms. Effects of working capital management on company profitability abstract. The results show that there is no significant relationship between the working capital components and profitability. Pdf the impact of working capital management on firm.
Equally important, the outcome of the study will be of benefit to managers in organization on what strategy to employ regarding working capital management in other to improve the performance of the organization. Impact of working capital management on the profitability of public. Effect of working capital management on firm profitability. The objective of the current work is to provide empirical evidence about the effects of working capital management on profitability for a panel data of 48 non financial firms during the periods 20072010. Pdf impact of working capital management on firms profitability. This study will try to provide a proof for managers to rely on when they make their working capital management decisions. H1 there is positive impact of working capital management on profitability of firm. This paper analyzes the effect of working capital management on firms profitability in kenya for the period 2003 to 2012.
Dec 02, 20 impact of working capital management on profitability case study of sugar and leather firms 1 3. A sample of 60 employees was taken and the financial statement for the period years, 2010 up to 2015 was used. It is a sensitive area in the field of financial management because it can affect the firms success. Enqvist et al 2011 documented that there is a negative relationship between cash conversion cycle and profitability. This study shows the link between the working capital management and profitability with the indirect effect of management policies effectiveness under the context of pakistan textile industry for which data have been taken from period 20062012. The working capital components and firms profitability tradeoff was examined via the fixed effects panel regression model.
Mawutor, john kwaku mensah, working capital management and profitability of firms. For this purpose, we studied a sample of companies listed in tehran stock exchange during the years 2006 to 2010. The effects of working capital management on firm profitability. China wang zhuquan professor ocean university of china qingdao, p. Evidence from pakistan global journal of management and business research volume xii issue xvii version i 2 y 2012 ear.
The research investigates impact of working capital management on the profitability of the firms. Some of these studies related to our study are briefly presented in the following section in. These studies used various variables and methodologies for analysis. Introduction working capital management is a very important component of corporate finance because it directly affects profitability of. Prior evidence has determined the relationship between working capital and performance. Pearsons correlation and regression analysis to explore the relationship between the profitability and the working capital components. Using the pearson bivariate correlation and regression analysis, the study reported current ratio cr as the significant factor influencing the profitability of cement manufacturing firms in.
Impact of working capital management on profitability in. If this happens and firms manager cannot manage it properly then it. Analysis of the effect of working capital management on. An empirical evidence from the bist sme industrial index fatih konak and ela nur guner. Working capital is required for daily operations of the firm. Working capital assessments by firms are mainly motivated by liquidity considerations. When we include cash conversion cycle ccc to working capital then it becomes working capital management wcm. The impact of working capital management on firm performance. Pdf impact of working capital management on profitability. Pdf on jul 1, 2016, mehtap oner and others published the impact of working capital management on firm profitability.
Effect of working capital management on the profitability. This research has analysed the impact of working capital on the profitability for a sample of 100 indian companies listed in the bombay stock exchange for a period of 2 years from 20102011. A study on textile companies of bangladesh ahmed su, mahtab n, nazmul islam and abdullah m school of business, independent university, bangladesh. This paper analyzes the effect of working capital management on firm s profitability in kenya for the period 2003 to 2012. Management of working capital in terms of liquidity and profitability management are essential for sound financial recital as it has a direct impact on the profitability of the company rajesh and. The paper examines the effects of working capital management on malaysian smes profitability within the sight of control factors measured by the size of the firm, leverage, and sales growth. The focus of this study on working capital management and its effects on profitability for a model of pakistani firms. The impact of working capital management on firm profitability. The study of working capital management as a financial. Impact of working capital on the profitability a case of pakistan state oil zillehuma, faiza maqbool shah. This study empirically examines the relationship between working capital management and profitability of acc cement company, the leading cement manufacturer of the country for assessing the impact of working capital management on profitability during the period 19992000 to 200910. Generally current assets of a firm include cash, ar, and.
Improper management of working capital, that is, too much or too low working capital may suffer firms, so an optimum level of working capital is the key to a smooth inflow of profit. Planning for a optimum working capital and thus investment in current assets and liquidity is one of the crucial part of financial planning. Companies search for liquidity and operational efficiency through minimizing their investment in. Pdf this study investigated the impact of working capital management on the profitability of fifteen listed fuel and power companies in. Effects of working capital management on company profitability. The effect of working capital management on profitability.
The relationship between working capital management efficiency and profitability is examined using correlation and regression analyses. Relationship between working capital management, policies. The impact of working capital management on firm pro. Working capital management has lately been a hot topic since the financial turmoil of the late 2000s. The efficient management of working capital is crucial to the profitability of firms, therefore, it is prudent that management of firms make available in the ri. Aug 08, 2012 thus, a company needs to have a striking balance between the liquidity and the profitability. C, average days of payment, inventory turnover, and a. Impact of working capital management on the profitability. A study on textile companies of bangladesh ahmed su, mahtab n, nazmul islam and abdullah m school. The study employed a quantitative research design, which was useful in establishing the relationship of working capital management on profitability. Annual data of 41 firms are used for the period 20052016 in the study.
Impact of working capital management on profitability. Impact of working capital management on the performance. The extant literature linking business cycles to working capital management does not show how the different economic states impact on the profitabilityworking capital relationship. The impact of working capital on the profitability. Objectives of the study present study is an empirical study of manufacturing industry of india for evaluating the impact of working capital on profitability during the period of 2008 to 20. A case study of hul ltd, india 57 operation is running in efficient and profitable manner. Working capital management involves managing proper balance between short term assets and liabilities so as to minimize working capital requirement and to maximize revenue. The impact of working capital management on profitability. The correlation between working capital and profitability of firms is analyzed for the management of cash cycle management. To analyze the impact of working capital on the profitability of the firm. Impact of working capital management on firms performance. Impact of working capital management on performance of.
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