The Impact of Working Capital Management upon Companies’ Profitability: Evidence from European Companies
Companies can use working capital management as an approach to influence their profitability. This paper studies the impact of working capital management and its components upon the profitability of European companies. Cash Conversion Cycle is used as a comprehensive measure for working capital management and Gross Operating Profitability used as a measure for profitability. This study is based on a sample of 2,974 non - financial companies listed in 11 European Stock Exchanges for a period of 12 years: 1998 - 2009. The results of GLS and OLS regression analysis found a significant negative relationship between Receivables Collection Period, Inventory Conversion Period, Payables Deferral Period, Cash Conversion Cycle and profitability. This suggests that companies can improve their profitability by reducing the time span during which working capital is tied up within the company. An inverse relationship between liquidity measured by Current Ratio and profitability was also found and an additional analysis revealed that different levels of liquidity lead to differentiated impacts of the Cash Conversion Cycle upon operating profitability.
|Date of creation:||Nov 2011|
|Contact details of provider:|| Postal: Rua Dr. Roberto Frias, 4200 PORTO|
Web page: http://www.fep.up.pt/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:por:fepwps:438. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.