Relationship Between Working Capital Management And Profitability In Brazilian Listed Companies
To overcome competition in a very complex environment, few companies have been able to use the optimization of working capital as a real competitive advantage to leverage profit. The objectives of this article are twofold: a) to investigate if there is any difference between corporate profitability and working capital management in two separate groups of companies: working capital intensive and fixed capital intensive; b) to identify the variables that most affect profitability. The profitability was measured in three different ways: return on sales (ROS), on asset (ROA) and on equity (ROE). The independent variables used are cash conversion efficiency, debt ratio, days of working capital, days receivable and days inventory. Two samples were obtained consisting of 16 Brazilian listed companies in each group for the period 2005-2009. Multiple linear regression has identified that, as far as ROS and ROA are concerned, to manage working capital properly is equally relevant for the two groups of companies. However the impact of debt ratio and days of working capital are relevant in the company profitability in the fixed capital group as opposed to the working capital group. From ANOVA it is evident that days inventory has negative relationship with ROS and ROA but has no statistical evidence in ROE improvement in working capital intensive group. It has also identified days of working capital as the variable that influences ROS in the second group (positive relationship) while debt ratio is the only variable that affects ROA (negative relationship). These results show that regardless the type of company, whether working capital or fixed capital intensive, managing working capital properly is equally important. Moreover, managing inventory as well as cash conversion efficiency to an optimum level will yield more profit in the working capital intensive type of company, while two other different variables create more profit in the fixed capital intensive type of company.
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