College Papers

Working more profitable a firm is. Agha (2014)

Working capital
management may be regarded as a very crucial source of profitability for a
business firm. A lot of researchers have studied the working capital management
and its impact on the success i-e the firm’s profitability, and they have found
that there is a very important link between efficient working capital
management and profitability. Almost many researchers have analyzed effect of
working capital management on profitability from different views and
perspectives.

Mathuva (2009)
studied working capital management components on corporate profitability using Inventory
Conversion Cycle (ICC), Average Payment Period (APP), Cash Conversion Cycle
(CCC), as Independent variables and Profitability as Dependent variable. Sample
of 30 listed firms data has collected from the period of 1993 to 2008 which are
listed at Nairobi Stock Exchange (NSE). In his investigation he actually used
Pooled OLS and the fixed effects Regression model. He found that significant
negative relationship between Accounts Receivables Period and Profitability i-e
the profitable firms use the shortest time strategy to get back their cash from
the customers. He also found that there is a significant and highly important
relation between the Inventory Conversion Period and the Profitability. He also
found that a very significant positive relation between Average Payment Period
and profitability which indicates that the more time a firm takes to pay its
creditors, the more profitable a firm is.

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Agha (2014) also
studied the working capital management and its effect on profitability using Independent
variables such as Inventory turnover, Current Ratio, Account Receivable turnover
and Return on Assets as Dependent variable. She took Glaxo Smith Kline
Pharmaceutical Company as a sample and collected secondary data from 1996 to
2011 i-e for a period of 15 years. After using Correlation Matrix and
Regression analysis she found that the working capital management has a very
strong effect on the profitability of a business firm. She found in her
empirical results that exist positive significant relationship between
Inventory turnover, Account Receivable turnover and Return on Assets i-e
Profitability, hence success of a firm can be increased by increasing inventory
turnover and account receivable ratio while profitability of a business firm
has no such significant relationship with current assets ratio which means that
profitability cannot be affected by minimizing or maximizing current ratio.

Charitou, Elfani
et al. (2010) examined working capital management and its impact on the
profitability of companies. The researchers used Cash Conversion Cycle
constituents that are Creditors payment period, days in inventory & days
sales outstanding as Independent variables and firm’s profitability as Dependent
variable in their study. 43 firms data has been collected which were listed on
Cyprus Stock Exchange (CSE) from the period of 1998 to 2007. They used
multivariate regression as data analysis technique in their study. They found
through empirical testing and analysis that all components of CCS are
significantly associated with the firm’s profitability.

Akoto,
Awunyo-vitor et al. (2013) also worked on the working capital management and
profitability of firms. They took Accounts Receivable days, Accounts Payable
days, Cash Conversion Cycle, Current Asset ratio, Firm’s Size and Current Asset
turnover as Independent variables and Return on Equity used as proxy for
profitability as Dependent variable. The study used a sample of 13 listed firms
in Ghana. The secondary data was collected for the selected firms during period
of 2005-2009. Ordinary least square Regression technique was used as Data
analysis technique. The investigation found negatively significant relationship
between Accounts Receivable days and Return on Equity, while the current asset
ratio, Current asset turnover, Size of the firm and Cash conversion cycle of
the firm showed positively significant association with profitability.