The Relationship between Working Capital Management and Profitability: A Vietnam Case

International Research Journal of Finance and Economics ISSN Issue 01/2010; 49:1450-2887.

ABSTRACT The working capital management plays an important role for success or failure of firm in business because of its effect on firm's profitability as well on liquidity. The study is based on secondary data collected from listed firms in Vietnam stock market for the period of 2006-2008 with an attempt to investigate the relationship existing between profitability, the cash conversion cycle and its components for listed firms in Vietnam stock market. Our finding shows that there is a strong negative relationship between profitability, measured through gross operating profit, and the cash conversion cycle. This means that as the cash conversion cycle increases, it will lead to declining of profitability of firm. Therefore, the managers can create a positive value for the shareholders by handling the adequate cash conversion cycle and keeping each different component to an optimum level.

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    ABSTRACT: The present study provides of cash conversion cycle (CCC) and profitability of selected listed manufacturing companies during the period from financial year 2006 to 2010. In order to select the sample, convenience sampling technique was used. Further the study suitably used secondary data. Correlation and regression analysis were performed. Results revealed that CCC and profitability [i.e., return on assets (ROA)] are negatively correlated with the value of -0.663 which is highly significant at 5 percent level. Results of the regression analysis is CCC is 0.439 which means 43.9 percent impact on profitability. This study would hopefully benefit to the academicians, researchers, policy makers and practitioners of Sri Lankan and other similar countries through exploring the impact of CCC and on profitability and pursuing policy to improve the current status of it.
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    ABSTRACT: Working capital management is an essential element in short-term financing and cash flow. Previous studies have also discussed the impact of working capital management on the relative profitability of a company. In this paper, we study the effect of the management of working capital components (inventories, accounts receivable and accounts payable) on profitability in the context of the value chain. The findings suggest that the components of working capital should be managed together to achieve positive effects on profitability. Companies also need to take account of the other companies of the value chain in their management of working capital components.
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