The impact of working capital management on credit rating

Abuhommous, Ala’a Adden; Alsaraireh, Ahmad; Alqaralleh, Huthaifa

doi:10.1186/s40854-022-00376-z

Cited by 9 publications

(8 citation statements)

References 42 publications

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“…Doing so (risk-taker) tends to decrease the value of inventories and accounts receivables (Briones et al ., 2022). Also, adopting this policy by lowering the amount of investment in working capital tends to improve their financial performance (García-Teruel and Martínez-Solano, 2007; Baños-Caballero et al ., 2012; Pais and Gama, 2015; Altaf and Shah, 2018; Abuhommous et al ., 2022). Applying an aggressive strategy implies that firms have high levels of investment in non-current assets and little investment in current assets, such as low cash balances, low levels of inventories and a very limited grant of credit to customers in order to increase profits (Pais and Gama, 2015).…”

Section: Resultsmentioning

confidence: 99%

“…Following Altaf and Shah (2018) and Wang et al (2020), the finding indicated that shortening ICP through a lower amount of investment in inventory can improve firm profitability. This is because excessive inventory investments can lead to higher storage costs, bad debts, physical deterioration and inventory obsolescence (Altaf and Shah, 2018;Wang et al, 2020;Abuhommous et al, 2022). Therefore, halal firms have to aggressively manage their inventories by keeping less (Panda et al, 2021).…”

Section: Correlation Matrixmentioning

confidence: 99%

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The impact of working capital management on the profitability of listed halal food and beverage companies

Umar,

Al-Faryan

2023

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PurposeThis study investigated how working capital management (WCM) influences the profitability of listed halal food and beverage companies.Design/methodology/approachThe study utilized a sample of 56 listed halal food and beverage companies operating in Indonesia, Malaysia, Saudi Arabia, Pakistan and the United Arab Emirates (UAE). Unbalanced panel data were generated from the Bloomberg database between 2008 and 2021. Besides, the study employed the two-step system generalized method of moments (GMM) technique for the estimation, which can address the models' endogeneity, heteroskedasticity and autocorrelation problems. Also, feasible generalized least square (FGLS) regression was applied to check the robustness of the results.FindingsThe study revealed that the cash conversion cycle (CCC) and accounts receivable period (ARP) significantly reduced firm profitability. Also, the inventory conversion period (ICP) significantly reduced return on assets (ROA) but insignificantly influenced return on equity (ROE). However, the results showed that the accounts payable period (APP) significantly increased firm profitability. These findings are robust to the results obtained by applying FGLS regression.Research limitations/implicationsThe study utilized a sample of only the listed halal food and beverage firms that operate in Indonesia, Malaysia, Saudi Arabia, Pakistan and the United Arab Emirates (UAE).Practical implicationsThe study suggests that the management of listed halal firms should adopt an aggressive policy in managing their working capital in order to enhance their financial performance. This could be attained by lowering CCC when ARP and ICP are reduced and APP is increased.Originality/valueThis study contributes to the literature by providing cross-country empirical evidence showing how working capital and its components affect the financial performance of firms that solely produce or buy and sell halal food and beverage products in five countries.

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Section: Resultsmentioning

confidence: 99%

Section: Correlation Matrixmentioning

confidence: 99%

The impact of working capital management on the profitability of listed halal food and beverage companies

Umar,

Al-Faryan

2023

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“…WCM concept pertains to how rms manage their current assets and liabilities, and this policy comprises two elements: the level of investment in current assets and the means of nancing current assets. When selecting the most suitable policy, rms try to obtain an optimal level of working capital, depending on the trade-off between risks and return (Yahaya & Bala, 2015; Abuhommous et al, 2022). In the absence of adequate liquid assets in place, the rm is unable to discharge its nancial obligations on time Beemnet, 2018).…”

Section: Literature Review Working Capital Managementmentioning

confidence: 99%

Impact of Working Capital Management on Profitability of Private Commercial Banks in Ethiopia

Mengstie

Ijara

Ijara³

2023

Preprint

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Working capital management is an important financial management decision for the profitability of commercial banks. The purpose of this study is to examine the impact of working capital management on commercial banks' profitability. The study used secondary data from audited financial statements of five private commercial banks in Ethiopia covering the period from 2011 to 2020. The banks were selected on a convenience basis. The financial information from the banks was analysed to determine the impact of the current ratio, bank size, a current asset to total asset ratio, loans and advances to total asset ratio, and current liabilities to total assets Ratios on profitability. The researchers applied descriptive statistics and inferential statistics. The data were analysed using the Stata data processing package. An econometric model is applied to examine the impact of working capital management on the profitability of commercial banks. A random effect model was employed and the result revealed that bank size and loans and advances to total assets were found to have a significant impact on banks' profitability. The current ratio, a current asset to total asset ratio, and current liabilities to total assets Ratios were found insignificant to influence banks' profitability. Since the profitability of the banks depends on working capital management, rigorous attention should be given to those factors that influence the profitability of commercial banks.

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“…While it is possible to make short-term gains from short-termism , such an approach is likely to have negative longterm effects that would, in turn, lead to an underperforming economy as companies reduce their spending on successful long-term research and development (Niu et al 2022). Abuhommous et al (2022) mentions that if a company wants to preserve a high working capital it must assume the risk of relying on long-term financing because it has a high interest cost, which to an increase in the organization's opportunity costs and therefore the company may be adversely affected in its profitability.…”

Section: Liquiditymentioning

confidence: 99%

Economic management and liquidity of a company listed on the Lima Stock Exchange (LSE)

Alfaro Cruzado,

Pujupat Shirap,

Llatas Becerra

et al. 2023

SIJIS

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In order to make good decisions in the company, executives must know the reality of their company and the needs that each area has, as this allows them to adequately plan their budget and allocate sufficient economic resources for the performance of their functions. The main objective was to determine the relationship between economic management and liquidity of a company listed on the LSE from 2017 to 2021. In addition, it was considered to use a basic quantitative approach, with a descriptive correlative level, with a longitudinal design, with the population and sample composed of the company's consolidated financial data in the 2017-2021 study. The findings revealed that inventory turnover achieved a p-value of less than 0.05 with the three liquidity dimensions; additionally, a Pearson of 0.883 was obtained with working capital. This allows us to conclude that if an organization is able to maximize its value through proper planning that takes into account the real needs of the organization and moves towards recognizing the economic risks that can cause liquidity problems, then efficiency in business management is achieved.

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The impact of working capital management on credit rating

Cited by 9 publications

References 42 publications

The impact of working capital management on the profitability of listed halal food and beverage companies

The impact of working capital management on the profitability of listed halal food and beverage companies

Impact of Working Capital Management on Profitability of Private Commercial Banks in Ethiopia

Economic management and liquidity of a company listed on the Lima Stock Exchange (LSE)

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