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Return On Current Assets, Working Capital And Required Rate Of Return On Equity

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  • Monika Bolek

    (University of Lodz, Faculty of Economics and Sociology)

Abstract

The problem of return on current assets and return on working capital related to the cost of equity invested in a company is analyzed in this paper. Risk – return and liquidity – profitability trade-offs influence the company’s equilibrium and management decisions. Liquidity is measured by the cash conversion cycle and it is related to the working capital strategy, measured by current ratio. Rate of return on current assets should be related to the rate of return on working capital that is linked to the cost of capital and the required rate of return. The results indicate that there is a positive relationship between the return on current assets and cash conversion cycle, a positive relationship between cost of equity and return on working capital meaning that the working capital, cash conversion cycle and current assets management are related to profitability, and cost of equity is determined by the required rate of return calculated based on the Capital Asset Pricing Model.

Suggested Citation

  • Monika Bolek, 2014. "Return On Current Assets, Working Capital And Required Rate Of Return On Equity," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 10(2), pages 1-10, August.
    • Handle: RePEc:rze:efinan:v:10:y:2014:i:2:p:1-10
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    File URL: http://e-finanse.com/artykuly_eng/274.pdf
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    References listed on IDEAS

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    Cited by:

    1. Evgeni Raykov, 2017. "Analysis of the Weighted Average Cost of Working Capital of Selected Companies on the Bulgarian Stock Exchange During the Financial and Economic Crisis," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 555-572, December.

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    More about this item

    Keywords

    return; equity cost; liquidity risk Least Squares Method;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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