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Working Capital Management and Firm Profitability. Empirical Evidence for the Romanian Industry

Author

Listed:
  • MiloÅŸ Marius Cristian

    (West University of Timisoara)

  • MiloÅŸ Laura Raisa

    ("Eftimie Murgu" University of Resita)

Abstract

The paper aims on empirically testing the connection between a firm's liquidity, or else a firm's ability to manage short-term liabilities, without undue stress and its profitability. We are using both a static and dynamic measure of firm liquidity: the traditional current liquidity ratio alongside one of the most frequent used working capital management indicator, the cash conversion cycle. An empirical analysis is performed based on 50 listed companies from Bucharest Stock Exchange, covering various industries. The empirical results are confirming the previous research that has confirmed the negative connection between the days sales outstanding (DSO), respectively the days inventory outstanding (DIO) and the profitability of the firm, while cash conversion cycle seems to be positively connected with the firm profitability, in contradiction with some of the previous empirical literature.

Suggested Citation

  • MiloÅŸ Marius Cristian & MiloÅŸ Laura Raisa, 2017. "Working Capital Management and Firm Profitability. Empirical Evidence for the Romanian Industry," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 425-429, December.
    • Handle: RePEc:ovi:oviste:v:xvii:y:2017:i:2:p:425-429
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    File URL: http://stec.univ-ovidius.ro/html/anale/RO/2017-2/Section%20IV/14.pdf
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    Cited by:

    1. Jacek Jaworski & Leszek Czerwonka, 2021. "Meta-study on the relationship between profitability and liquidity of enterprises in macroeconomic and institutional environment," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 48(2), pages 233-246, June.

    More about this item

    Keywords

    ROA; cash conversion cycle; working capital; liquidity;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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