Working capital management and firm profitability

Knauer, Thorsten; Wöhrmann, Arnt

doi:10.1007/s00187-013-0173-3

Cited by 76 publications

(67 citation statements)

References 23 publications

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“…Therefore, it is important to understand that working capital has a considerable influence on SME profitability. Knauer and Wöhrmann [9] show that the management of accounts receivable and the management of inventory positively impacts on company profitability. Yet, the impact of the management of accounts payable on company profitability is governed by reverse causality.…”

Section: Literature Reviewmentioning

confidence: 99%

Econometric Modeling of SME Performance. Case of Romania

et al. 2018

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Abstract:In the present study, we analyzed the financial equilibrium factors that have a major impact on SME financial performance, as this performance is considered to have played a pivotal role in Romania's recovery from the economic crisis. Thus, we built econometric models based on return on assets and return on sales in five economic sectors, i.e., pharmaceuticals, furniture manufacturing, leather garment factories, software firms and textile factories. We show how the enterprises' performance was influenced by the independent variables of the equilibrium: fixed assets, current assets, inventory, receivables, equity and liabilities. The results indicate that return on assets is influenced by the current assets ratio and the inventory ratio in all models, as well as by the equity-to-total liabilities ratio in 80% of the models. We also notice that assets ratios have the highest influence on performance evaluation, namely inventory ratio in all models and current assets ratio in 87.5% of the models. In addition, liabilities ratios influence performance as follows: equity-to-total liabilities ratio in 80% of the models and total debt-to-assets ratio in 35% of the models.

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Section: Literature Reviewmentioning

confidence: 99%

Econometric Modeling of SME Performance. Case of Romania

et al. 2018

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“…Therefore, we contend that the direct objective of firm strategic adjustment is to increase its operational capacity. From the perspective of financial analysis and working capital management, some indices can represent the profit and operational and cash controlling capacities of firms [46]. We first conduct a statistical analysis of operational capacity and firm strategic performance to construct the vector of operational capacity.…”

Section: Vector Of Operational Capacitymentioning

confidence: 99%

Strategic Adjustment Capacity, Sustained Competitive Advantage, and Firm Performance: An Evolutionary Perspective on Bird Flocking and Firm Competition

Chen

Mao

et al. 2017

Mathematical Problems in Engineering

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Imitating the positioning rules in the bird flocking system, the strategic adjustment capacity is decomposed into three aspects, which are the organizational learning capacity from the top firms, the extent to which firms maintain or rely on the best operational capacity vector in history, and the ability to overcome the disadvantage while maintaining the advantage of the operational capacity vector from the previous years, respectively. Financial vectors are constructed to represent the results of corporate strategic adjustment and listed firms in the China A stock are chosen as the samples. As empirical analysis reveals, there is a positive correlation between the organizational learning capacity from the top firms and the firm performance and a U-shaped relation between the learning capability from the previous best operational capacity vector and the firm performance. However, no significant correlation between the inertia control ability of the current operational capacity vector of the firms and their performance improvement can be observed. This study verifies that the issue of corporate competitiveness and performance can be investigated by utilizing the principles of competition in nature. Moreover, a firm can obtain a sustainable competitive advantage by improving its ability to learn from top firms in the industry.

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“…Extensive research work has been done using these two variables in similar types of study. When the cash conversion cycle increases it leads to decrease the profitability of the firm [12]. Relationship between profitability and working capital management for listed companies of Tehran Stock Exchange for the period of 2001-2008.…”

Section: Review Of the Literaturementioning

confidence: 99%

Impact of Working Capital Management on Profitability: A Study on Textile Companies of Bangladesh

Su¹,

Mahtab²,

Islam³

et al. 2017

J Bus Fin Aff

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The uniqueness of this research is to identify the dynamics of strategic objectives, strategic policies of the textile sector of Bangladesh in order to manage working capital to achieve profitability. Keywords:Working capital management; Profitability; Textile sector; Bangladesh IntroductionIn the current perspective of the competitive market short-term assets and liabilities are important components of total assets and need to be analyzed carefully at the side of long-term assets and liabilities. Management of this short-term assets and liabilities are subject to investigate warily from the time because working capital management plays a vital function for the firm's profitability and risk as well as its value [1]. According to Alavinasab and Davoudi [2], "Working capital includes all short term assets which company uses it in daily activities. Working capital is an indicator for measuring the liquidity which is defined as adequacy of cash for doing firm's obligations". Generally, all short term assets which company use in daily basis is included in working capital. In the field of financial management, working capital management is a very sensitive area [3]. Working capital management is also very important for the firm's success; hence companies are trying to maintain optimal levels of working capital. Companies are adopting methods for managing proper level in various components of working capital i.e., cash receivables, inventory and payables etc. [4]. According to Pike and Neale [5], companies with improper condition of liquidity cannot pay their bills on the maturity date, in contrast companies with proper situation of liquidity have adequate cash for the payment of their bills on the maturity date. To increase the shareholder's wealth and firm's profitability, planning and policies regarding working capital management should get higher priority so that it should be done on the basis of supply chain management [2].Similar to the other business sectors, efficient management of working capital is equally important for textile sector as well. Textile companies are dealing with accounts payables and accounts receivables routinely along with their day to day activities for purchasing raw materials and for selling products. But due to the lack of knowledge regarding the working capital and lack of management's ability to plan and control its components, textile companies are facing insolvency, in long run their performance is deteriorating and causing bankruptcy [2]. Both the practitioners and researchers have emphasized on efficient management of working capital to ensure better performance and AbstractManagement of short-term assets and liabilities play vital role in generating profit in business sector. In the light of that, textile sector from all over the world is also emphasizing on to maintain optimal working capital to generate more profit. Researchers and practitioners around the world have done lot of work on how to maintain working capital in optimal level. Similarly, in Bangladesh, textile sector h...

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Working capital management and firm profitability

Cited by 76 publications

References 23 publications

Econometric Modeling of SME Performance. Case of Romania

Econometric Modeling of SME Performance. Case of Romania

Strategic Adjustment Capacity, Sustained Competitive Advantage, and Firm Performance: An Evolutionary Perspective on Bird Flocking and Firm Competition

Impact of Working Capital Management on Profitability: A Study on Textile Companies of Bangladesh

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