ATENEO DE DAVAO UNIVERSITY
E. Jacinto St., Davao City
A Quantitative Study of The Effects of Industry Characteristics on The Working Capital Management Using the Cash Conversion Cycle as The Measure: The Case of The Thirty Largest and Most Active Listed Stocks in the Philippine Stock Exchange
Methods of Financial Research
1:00- 2:30 PM
Mrs. Marietta Eliot Pampanga
Princess Kiezel M. Sultan
June 30, 2011
A. Problem Background
Crises in the global market are experienced since the last few years and are getting worse in the present. In the case of the US, recession just passed their way. In the present, they are in the phase of struggling with a “jobless economic recovery path” which means that the federal government should engage in bond buying considered to be a second round of quantitative easing to support economic activity. This also means for them another factor that would increase their budget deficits. In Europe, the IMF (International Monetary Fund) sees heightened risks from European sovereign debt which leads them to worry about faltering of a fragile global economic recovery unless Europe averts sovereign defaults, the United States gets its fiscal house in order and emerging economies prevent overheating. In its regular assessment of global economic prospects released every Friday, the Washington-based global lender warned the US and debt-ridden European countries that they are "playing with fire" unless they take immediate steps to reduce their budget deficits. The Euro zone’s economic landscape likewise appear no better, with investors fearing a full-blown sovereign debt crisis would erupt in some member-countries. In contrast, brighter economic prospects and higher interest rate differentials have made emerging market economies, the Philippines included, the prime destination of capital inflows. The BSP (Bangko Sentral ng Pilipinas) cited the IMF’s projection of an 8.5% GDP growth for emerging economies in Asia for the year 2011 which is more than three times the 2.5% growth projected for advanced economies. In line with this, reports of the BSP had already stated since the first quarter of the year that economic growth would accelerate this year. Amando Tetangco Jr., the BSP Governor et. al. also said that 2009 was the year when the Philippine economy showed resilience against the previously elaborated global financial crisis and 2010 is the year of the fulfilled promise of economic rebound. Thus, 2011 could be characterized as the year of sustaining the growth momentum. This prediction of growth to the economy is linked to an advantage for big and small sectors in the economy to flourish. To their advantage, the resilience of the Philippine economy from being affected negatively and with a huge impact gives these businesses a chance to examine their methods of earning and their whole operation to find for improvement strategies that would best support their profitability. Despite this, due to the global crisis mentioned above, fluctuations in the market become a big reality that companies and enterprises have to face. This would mean for them a need to establish a stiff foundation of their business operations to better achieve their goal of profitability. This goal cannot be achieved if without proper management of their resources. Management on operations would lead to no better idea but the concept of working capital management.
Perhaps one of the most (if not the most) commonly studied topics covering finance is the working capital, working capital management and working capital policies of firms in particular. The term working capital originated with the old Yankee peddler, who would load up his wagon with goods and then go off on his route to peddle his wares. He would borrow the inventory, sell the inventory to pay off the bank loan, and then repeat the cycle. This concept has been applied to more complex...
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