working capital
2. BACKGROUND
The study of Working Capital Management cannot be over emphasised. It is a very important element in corporate financing and very crucial to company survival. Companies usually require an optimal level of working capital to meet daily obligations, continue production and make profit. However, some managers fall short and the companies liquidate.
According to Harris (2005) “Working capital management is a simple and straight forward Concept of ensuring the ability of the firm to fund the difference between the short- term assets and short- term liabilities.” Working Capital Management will therefore be described as the maintenance of efficient levels of Working Capital components, Current assets and Current liabilities.
The past few years have been particularly challenging for companies and managers have encountered difficulties in drafting acceptable policies. Cash has become very expensive to obtain, however lenders look favourably on managers who make an effort to make the best use of resources within the working capital cycle. A trade-off is said to exist between liquidity and performance, therefore the problem of drafting optimal policies that support liquidity management, risk avoidance and profitability arises and need to study it.
Personally, the researcher believes this area of corporate finance is a global concept which affects organisations of all sizes and industry. Therefore a critical study of this topic area will boost the researcher’s ability to make generalisations; apply knowledge and skill to real life work scenarios.
This research investigates the trends in the management of working capital components and profitability; the effects and relationship between Working capital management and the performance of companies. However focus is on multinational manufacturing companies listed on the Nigerian Stock Exchange, for a period of five years (2006-2011). Working Capital is treated as the independent variable and is
The study of Working Capital Management cannot be over emphasised. It is a very important element in corporate financing and very crucial to company survival. Companies usually require an optimal level of working capital to meet daily obligations, continue production and make profit. However, some managers fall short and the companies liquidate.
According to Harris (2005) “Working capital management is a simple and straight forward Concept of ensuring the ability of the firm to fund the difference between the short- term assets and short- term liabilities.” Working Capital Management will therefore be described as the maintenance of efficient levels of Working Capital components, Current assets and Current liabilities.
The past few years have been particularly challenging for companies and managers have encountered difficulties in drafting acceptable policies. Cash has become very expensive to obtain, however lenders look favourably on managers who make an effort to make the best use of resources within the working capital cycle. A trade-off is said to exist between liquidity and performance, therefore the problem of drafting optimal policies that support liquidity management, risk avoidance and profitability arises and need to study it.
Personally, the researcher believes this area of corporate finance is a global concept which affects organisations of all sizes and industry. Therefore a critical study of this topic area will boost the researcher’s ability to make generalisations; apply knowledge and skill to real life work scenarios.
This research investigates the trends in the management of working capital components and profitability; the effects and relationship between Working capital management and the performance of companies. However focus is on multinational manufacturing companies listed on the Nigerian Stock Exchange, for a period of five years (2006-2011). Working Capital is treated as the independent variable and is
References: • Azam, M., Haider, I., (2011). Impact of Working Capital Management on Firm’s Performance: Evidence from Non-Financial Institution of KSE-30 Index. Interdisciplinary Journal of Contemporary Research in Business, September 2011, Vol3; No5. • Deloof, M., (2003). Does Working Capital Management Affect Profitability of Belgian Firms? Journal of Business Finance and Accounting, 30:573-588. • Eljelly, A., (2004) Liquidity-Profitability Trade-off. An empirical Investigation in an Emerging Market. International Journal of Commerce and Management. Vol 14: 46-81. • Ghosh, S., Maji S., (2003). Working Capital Efficiency: A study on the Indian Cement Industry. The Institute of Cost and Works Accountants of India. • Lazardis, I., Tryfonidis, D., (2006). Relationship between Working Capital Management and Profitability of Listed Companies in the Athens Stock Exchange. Journal of Financial Management and Analysis; 19:26-45. • Shin, H., Soenen, L., (1998). Efficiency of Working Capital Management and Corporate Profitability. Finance Practice and Education; 8:37-45.