Research Paper On Working Capital Management

Research Paper On Working Capital Management-20
Firm can reduce their financing costs and or increase the funds available for expansion of project by minimizing the amount of investment tied up in current assets (Home Van Wachowicz, 2004).

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However, this study ignored the fixed effect of each firm as each firm has its unique characteristics and also ignores sector-wise analysis of Working Capital Management performance of manufacturing firms. “Trends in working capital management and its impact on firm’s performance: An analysis of Mauritian small manufacturing firms”.

Insufficient evidences on the firm’s performance and Working Capital management with reference to Nigeria therefore, provide a strong motivation for evaluating the relationship between working capital management and firm’s performance in detail. International Review Business Research Papers, 2(1), 45-56.

Current assets are the assets which can be converted into cash within an accounting year and these include; cash, short-term securities, debtors, bills receivables and stocks.

He described net working capital as the difference between current assets and current liabilities.

Considering the importance of Working Capital Management therefore, the researcher focused on evaluating the Working Capital Management and profitability relationship like other similar works such as Uyar, 2009; Samiloglu and Demirgune 2008; Vishnani and Shah, 2007; Tervel and Solano, 2007; Lazaridis and Tryfonidis, 2006; Padachi, 2006; Shin and Soenen, 1998; Smith et al, 1997 and Jose et al, 1996.

However, there are a few studies with reference to Nigeria in respect of the subject. “Impact of working capital and corporate profitability”. Profitability versus liquidity trade offs in working capital management, in readings on the management of working capital. While excess amount of working capital results in the reduction of firm’s profitability, holding of inadequate amount of it leads to lower levels of the firm’s liquidity and stock outs resulting in difficulties in maintaining smooth operation (Krueger, 2002). Business success, therefore, heavily depends on the ability of the financial managers to effectively manage accounts receivable, inventory and account payable (which are component of working capital) (Filbeck and Krueger, 2005). Current liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year.These include trade creditors, bills payable, bank overdraft and short- term loan.Most of these studies were however, centered on large firms operating within well developed money and capital market of developed economies and did not consider the fact that the amount of working capital required varies across industries and indeed firms depending on the nature of business, scale of operation, production cycle, credit policy, availability of raw materials etc (Ghosh and Maji; 2004). It is regrettable to note that in spite of these huge literatures in this area, many firms had crashed, more especially manufacturing sector of the Nigerian economy in which application of working capital is more pronounced (Jinadu, 2009). Shah and Sana (2006) concentrated on the oil and gas sector and estimated the relationship using small sample of 7 firms. Raheman and Masr (2007) analyzed profitability and Working Capital Management performance of 94 firms listed on Karachi Stock Exchange for the period 1999-2004 by using ordinary least square and generalized least square. “Working capital management in the paper industry”. This importance is hinged on the fact that the amounts invested in working capital are often high in proportion to the total assets employed and therefore warrants a careful investigation (Smith, 1980).Working Capital therefore, should neither be more nor less, but just adequate for the smooth running of a firm.

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