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.


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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    • "The research studies on working capital management highlight on its significance . Dong ( 2010 ) inferred that the relationship between profitability and cash conversion cycle was negative . Deloof ( 2003 ) observed that working capital management has deep impact on the profitability of business concerns . "
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    ABSTRACT: ABSTRACT Indian sugar industry accounts around 20 per cent of the sugar mills and 15 per cent of world sugar production. It has been key driver for rural industrialization. Today, sugar industry is at crossroads having opportunities for growth because of liberalization and challenges of global competition. The financial crisis of 2008-09 was the biggest shock to the global financial system. The collapse Lehmann Brothers and other US firms spread the panic all over the world. Indian economy was not exception and the crisis resulted in to slower industrial growth till date not recovered. Sugar industry in Maharashtra has been facing the problems such as lower capacity utilization, poor working capital management, erratic supply of sugarcane and obsolete technology. The major problems of the industry include irregular supply of sugarcane, increasing arrears due to farmers, deteriorating per hectare yield, high cost of production and lower or negative profit margins as a consequence of all these factors. Most of the sugar mills utilize production capacity below 50 per cent. Inadequacy and irregular supply of raw material, increasing losses and decreasing net worth and increasing amount of sugarcane arrears led to sickness in the industry and closer of more than 100 co-operative sugar mills in the country. In view of this scenario, the researcher has decided to study the financial management of a cooperative sugar industry viz., Dr. Babasaheb Ambedkar Cooperative Sugar Industry from Maharashtra state as a case study. The study has examined short term solvency, profitability and activity position of the unit under the study. The study found that Net worth of the unit had a positive growth whereas the net capital employed indicated a mixed growth trend. Short term solvency GE-INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH VOLUME -3, ISSUE -3 (March 2015) IF-3.142 ISSN: (2321-1709) A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories. GE- International Journal of Management Research (GE-IJMR) Website: Email: , Page 88 position of the unit was found satisfactory. However, because of high cost structure, the profitability position had been negative during most of the years of the study. Having tremendous potential for development of the industry in Maharashtra, the industry needs a new financial and marketing strategical approach competitive edge for sustainability. Key words: Working capital, Profitability, Solvency, Networth
    Full-text · Article · Mar 2015
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    • "For, profit and liquidity is equally important and one should not be preferred at the expense of other. If enterprises understand the importance of working capital, they can improve their general performance and minimize risks (Dong and Su 2010: 60). With regard to working capital management, the liquidity, profitability and risk triangle is crucial. "
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    ABSTRACT: Global crises affect the economic activities of countries in both macro and micro level. With the crises, accounting and financing practices gain crucial importance in enterprises. In other words, enterprises face the necessity of taking certain financing measures in order to survive the in the crisis environment. In this study, firstly the theoretical approaches concerning the financing measures to be taken by enterprises in crises are presented. The second part of the study is devoted to the survey prepared on the basis of the said theoretical framework and through which the enterprises’ views on the financing measures they take during times of economic crises were asked for.
    Full-text · Article · Dec 2011 · Procedia - Social and Behavioral Sciences
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    • "The indicators involved in regression analysis of economic performance are many. In recent literature, the profitability of companies in various countries and economy sectors is expressed by indicators like: Net Operating Profitability (NOP), (Raheman et al., 2010), (Dong et al., 2010), "
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    ABSTRACT: Achieving high performance is a crucial objective aimed by the management of anycompany. The accurate and efficient economic resources management contributes decisively toimproving performance. The paper presents an econometric model that shows the link betweeneconomic performance and patrimony management reflected through a series of indicators, such as thereturn on current assets, fixed assets ratio and the funding structure of capitals (financial leverage). Interms of research tools, we used techniques of regression analysis based on specialized software. Theobtained results allow drawing conclusions about the elements upon which decision makers shouldintervene in order to increase economic performance.
    Full-text · Article · Jan 2011
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