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The Impact of Operating Cash Flow and Current Ratio on the Profitability in Construction Industry

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  • Pordea Daniela

    (Doctoral School of Economics and Business Administration, West University of Timișoara, Romania)

  • David Delia

    (“Vasile Goldiș” Western University of Arad,Romania)

  • Mateș Dorel

    (West University of Timișoara,Romania)

Abstract

The quality of works and a good reputation on the market are the main factors that lead to the success of a construction business. That is why most of the projects carried out in this sector involve the provision of performance guarantees which are mainly constituted by retaining the amounts from each payment. This impacts the cash, but also the liquidity ratios of the entities. The purpose of our research is to analyze the influence of the operating cash flow and the current liquidity ratio on the profitability in the case of construction companies. For this, we have developed a linear regression model on cross-section financial data related to a single reporting year and obtained from construction companies in western Romania. The results we have obtained did not reveal statistical significance for the exogenous variables used in the model. However, we consider it important to deepen the problem of cash flows and the ability of construction companies to meet their short-term obligations in the context of retaining performance guarantees. Further research in this regard based on panel data for several financial periods could provide relevant results

Suggested Citation

  • Pordea Daniela & David Delia & Mateș Dorel, 2020. "The Impact of Operating Cash Flow and Current Ratio on the Profitability in Construction Industry," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(1), pages 22-32, March.
    • Handle: RePEc:vrs:suvges:v:30:y:2020:i:1:p:22-32:n:2
    DOI: 10.2478/sues-2020-0002
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    References listed on IDEAS

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    1. Daniel BRÎNDESCU – OLARIU, 2014. "Model De Prezentare A Fluxurilor De Numerar Dezvoltat Prin Metoda Indirectă," Management Intercultural, Romanian Foundation for Business Intelligence, Editorial Department, issue 30, pages 6-20, April.
    2. Thomas H. Brush & Philip Bromiley & Margaretha Hendrickx, 2000. "The free cash flow hypothesis for sales growth and firm performance," Strategic Management Journal, Wiley Blackwell, vol. 21(4), pages 455-472, April.
    3. Will Hughes & Patricia Hillebrandt & John Murdoch, 2000. "The impact of contract duration on the cost of cash retention," Construction Management and Economics, Taylor & Francis Journals, vol. 18(1), pages 11-14.
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    More about this item

    Keywords

    construction; guarantees; cash flow; current ratio; ROE;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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