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The relationship between working capital efficiency and profitability

Author

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  • Chisti Khalid ASHRAF

    (Accounting, Department of Business & Financial Studies, University of Kashmir,n Srinagar-190006, J&K India)

Abstract

Working Capital Management has its effect on liquidity as well on profitability of the firm. In this paper a sample of the 16 Indian firms, listed on BSE including firms from different sectors of our economy for a period which extends to five years starting from 2006 to 2011 has been taken. An attempt has been made to examine the effect of different variables of working capital management including the Debt ratio, Average collection period, Inventory turnover in days, Average payment period, Cash conversion cycle and Current ratio on the Net operating profitability of sample firms. Descriptive and Regression are used for analysis. The results show that there is a strong negative relationship between variables of the working capital management and profitability of the firm except the sales (Size of the company). We also find that there is a positive relationship between size of the firm and its profitability. There is also a significant negative relationship between debt used by the firm and its profitability.

Suggested Citation

  • Chisti Khalid ASHRAF, 2012. "The relationship between working capital efficiency and profitability," The Journal of Accounting and Management, Danubius University of Galati, issue 3, pages 21-45, December.
    • Handle: RePEc:dug:jaccma:y:2012:i:3:p:21-45
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    File URL: http://journals.univ-danubius.ro/index.php/jam/article/view/1449/1420
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    References listed on IDEAS

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    1. Azhagaiah Ramachandran & Muralidharan Janakiraman, 2009. "The Relationship between Working Capital Management Efficiency and EBIT," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 7(1), pages 61-74.
    2. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 573-588, April.
    3. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3-4), pages 573-588.
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    1. Radojko LUKIC, 2013. "The Influence of Working Assets Efficiency Management on the Profitability of Trade in Serbia," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 14(5), pages 731-745, December.
    2. Szymańska, Elżbieta & Lukoszová, Xenie, 2021. "Liquidity and Profitability of Meat Processing Enterprises in Poland," Problems of Agricultural Economics / Zagadnienia Ekonomiki Rolnej 319814, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).
    3. Ahmed Mohamed Habib & Umar Nawaz Kayani, 2023. "Evaluating the Super-Efficiency of Working Capital Management Using Data Envelopment Analysis: Does COVID-19 Matter?," SN Operations Research Forum, Springer, vol. 4(2), pages 1-20, June.
    4. Vo Thi Quy & Le Thi Minh Nguyen, 2017. "Effects of working capital management on firm performance and firm value – A study of the fisheries industry in Vietnam," HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE - ECONOMICS AND BUSINESS ADMINISTRATION, HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE, HO CHI MINH CITY OPEN UNIVERSITY, vol. 7(2), pages 42-52.
    5. Tapan P BAGCHI, 2013. "Working Capital and Profitability—Establishing the Causality," The Journal of Accounting and Management, Danubius University of Galati, issue 2, pages 27-52, August.

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