The topic of the relationship between working capital management and the profitability has the attention of the financial researchers in the recent past years. As the working capital management has an effect on the profitability of a firm. To examine that relation, researchers have used many approaches and methodologies. Moreover, they have used different data samples depending on the country or the region that they wanted to study. In this paper, five of those researches are going to be reviewed.
In the first research, Hyun-Han Shin and Luc Soenen (1998) studied the relationship between the working capital management efficiency and the profitability of the firms. Their hypothesis was that the Net Trade Cycle (NTC) has a negative relationship with the profitability of a company. Unlike most of the previous literature, the researchers have used the NTC instead of the CCC to measure the working capital management. The main two reasons behind that are it is easier to the outside investors to use the NTC and NTC is mostly equal to the CCC. Also, the other variables are Current Ratio, Debt Ratio and Sales Growth. Moreover, they got the data from the Compustat annual industrial for the years 1975 to 1994 and remove any company that has invalid data. Furthermore, there main finding was that NTC is an easy method to test a company's working capital management. Also they found out that there is a negative relationship between the NTC and the profitability of a company, which conform their hypothesis.
In the second research, Sonia Banos-Caballero and Pedro J. Garcia-Teruel (2012) studied the relationship between working capital management and profitability in Spanish firms. Their hypothesis was that there is concave relation...
... middle of paper ...
...ch. In most of these studies the CCC was used to measure the working management capital and that is what I am going to use in my paper. Also, in the most studies the result shows that there is a negative relationship between the profitability and the working capital management, except of the result of Sonia and Pedro (2012) because they used a different methodology to test the relationship. In addition, we can notes some similarities in the other control variables. The study of Hernán, Lorenzo and Virginia (2012) has added a new perspective to the way of looking at the working capital management.
My paper is going to add and contribute in the literature by adding a new country, which is Saudi Arabia. Also, we are going to see if the results will be the same of what have been found in other countries. What are the causes of the differences or the similarities?
In SIVMED’s case, based on the definition of WACC, all capital bases should be included in its WACC. These include its common stock, preferred stock, bonds and long-term borrowings. In addition to being able to compute for the costs of capital, the WACC also determines how much interest SIVMED has to pay for all its activities. The value of the firm’s stock, which we want to maximize, depends of the after-tax cash flow. Hence, after-tax values for WACC are also needed. Furthermore, cost of capital is used to determine the cost of each debt, stock or common equity. Being able to analyze these will be essential into deciding what and how new capital should be acquired. Hence, the present marginal costs are ideally more essential than historical costs.
Measuring the liquidity through the current ratio, with 2.74 in the year 2009,0.74 above the standard, with the decline in the following year meeting exactly the standard at 2% in the year 2010, and a steep decline in the year 2011-2012 as compared to its standard.Resulting in the decline in firm’s ability to meet its day-to-day operating expenses. The current liabilities from 2009 to 2012 have increased by 27.03 billion whereas the investments in current assets have increased just by 26.09 billion, which causes the decline in the current ratio. To cope up with this problem the company should invest more in current assets and should reduce its current liabilities.
The working capital of Fairmount Energy as calculated using the current assets, and current liabilities given in the annual report of the year ended March 31st, 2009 is -$6,978,713. Given this information, an auditor can conclude that the company has a very low working capital. On March 31st, 2009, Fairmount Energy has a large amount of liabilities and a small amount of assets, which creates a working capital deficit. In addition, the annual report of the year ended March 31st, 2008 shows that the working capital of Fairmount Energy is -$13,897,716 which is an extremely low working
Saudi Arabia and Qatar are both independent, Middle Eastern nations located on the Arabian Gulf peninsula. They share the same religion, same ruling style and same ruling religion. They are both Islamic monarchies where Wahhabism—a fundamentalist sect of Islam—is the primary faith among their people and the faith of their ruling families. Their economies follow nearly identical paths, as oil wealth is the primary sector of both of their Gross Domestic Products (GDPs) and largely controlled by the government. Both Saudi Arabia and Qatar are economically oil-driven Wahabist kingdoms; however, Qatar 's lack of reliance on Wahhabism coupled with its acceptance of its own ephemerality has
Saudi Arabia and China are quite different countries. The latter is much larger than the former. The former is the largest country of the Arabian Peninsula and it is located in Middle East, bordering the Arabian Gulf and the Red Sea, north of Yemen. The latter is the largest country in Eastern Asia, bordering the East China Sea, between North Korea and Vietnam. Although there some similarities between Saudi Arabia and China, there are also several differences in the areas of population, economy and the culture.
The following content provided will include information regarding Nikes Inc. cash management strategies, which will include more in depth information from the previous group paper. In addition, working capital recommendations will be provided to senior management base on next year’s in the pro-forma financial statements.
Profitability ratios measure „management´s ability to make efficient use of firm´s assets to generate sales and manager firm´s costs“ (Moles et al 2011:132).
As such, there is material cost regulator, manufacturing control, labor cost regulator, excellence control and so on. Conversely, control over the price is implemented through the methods of financial control and typical costing (Meigs, 1998). The control methods aid the management in understanding the operating competence of a firm. Cost accounting also determines the selling price. The intention of all business firms is minimizing costs and maximizing profits. The costs incurred in producing goods and services may be reduced through incorporating alternate but cheaper resources of
Net working capital, is a key figure to watch only if you have several years worth of reports to compare.
In this essay, I will give brief review notes for “Access to Capital Structure, and the Funding of the Firm” (Omer Brav 2009) which will be focused on the goal of this easy, how and why the theoretical hypotheses are tested and what are the findings. Some discussions about data, methodology used and theory defects will also be included in this essay for critical comment.
Both countries have nearly identical scores in the dimension of masculinity. This exhibits the driving cultural forces of competition and achievement, with success held in high regard over other values. With Uncertainty Avoidance, the country is once again polarized. With the USA's relatively low score, the culture exhibits acceptance for new ideas with an emphasis on innovation and toleration. On the opposite end of the spectrum, Saudi Arabia maintains rigidity in belief systems and acceptable behaviors and ideas, valuing security over uncertainty.
The shareholders of Event Planners Ltd; a business specialised in planning events such as birthdays, weddings, etc., are disturbed regarding the unprofitable state of the business and the cash flow problem the business faces in recent times. This report discusses the importance of cash and profit for business survival, outlines how the problem of cash flow arises, effects of cash flow problems for the business, and identifies methods for dealing with cash flow problems. It gathered and applied information from several sources such as academic articles, reports, and documents, assumed to be credible enough for the discussions.
Research on the Sources of Finance for a Business Firms sometimes need to raise finance for Working Capital and Capital Expenditure. Explain what each is and give examples. · Working Capital (or Revenue Expenditure) The working capital is made up of the current assets net of the current liabilities. It is vital to a business to have sufficient working capital to meet all its requirements. Many businesses have gone under, not because they were unprofitable, but because they suffered from shortages of working capital.
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.
The capital maintenance concept used results in differences between the relevance and faithful representation of the data that appears in the balance sheet and income statement. The difference between financial capital maintenance and physical is the treatment of unrealized holding gains and losses. Financial capital maintenance does not allow for unrealized holding gains and losses. Only realized gains and losses are included in income because they “are considered a return on capital” (Schroeder et al., 2013). This means, “income is measured only after the investment is recovered” (Gamble, 1981). Physical capital maintenance “consider[s unrealized holding gains and losses] as returns of capital and do[es] not include them income.” (Schroeder et al., 2013). Instead, they are treated as adjustments to equity and included in other comprehensive income. Therefore, with physical capital maintenance “an increase in an entity’s wealth as...