Documenti di Didattica
Documenti di Professioni
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RELATIONSHIP WITH
CORPORATE PROFITABILITY
SUBMITTED BY TARUN KUMAR
MBA(FINANCE)
ROLL NO: 28
SECTION: A
MARCH 1, 2019
AMITY BUSINESS SCHOOL
NOIDA 125
LITERATURE REVIEW’S
1. MY FIRST RESEARCH PAPER IS FROM MIAN SAJID NAZIR AND TALENT
AFZA AND THE TOPIC WHICH THEY TOOK INTO CONSIDERATION IS
“impact of aggressive working capital management policy on firm’s profitability”.
THEY HAVE USED THIS PANEL DATA REGRESSION MODEL FROM 1998-
2005 WHICH IS DONE 204 PAKISTAN FIRM’S WHICH WAS AGAIN
DIVIDED INTO 16 INDUSTRIAL GROUPS BY KSE. THE STUDY FINDS A
NEGATIVE RELATION BETWEEN THE BOTH SO IF A FIRM FOLLOW
AGGRESSIVE WORKING CAPITAL THEN THEY WILL FACE A NEGATIVE
RETURNS BUT AFTER THAT THEY CONDUCTED A TEST WHICH WAS NOT
DONE BEFORE FOR FURTHER VALIDATING THE RESULTS WHICH THEY
GOT “the relation between aggressive working capital polices on market measure of
profitability”. SO IN SHORT THIS STUDY ONLY TELLS YOU THAT A FIRM
CANNOT GENERATE MORE PROFIT WITH THIS AGGRESSIVE WORKING
CAPITAL POLICY AND AS FAR AS BV (BOOK VALUE) IS CONCERNED EVEN
THEN NO EXTRA RETURNS ON ASSETS TOWARS SHORT TERM ASSETS
AND LIABILITIES. THE MARKET VALUE WAS MORE AS COMPARED TO
BOOK VALUE, EVEN IF THE FIRM USES HIGH LEVEL OF CL (CURRENT
LIABILIITIES) IN THEIR FINANCING. THE INVESTER BELIEVED THAT, IF A
FIRM WANTS TO OUTRUN OTHER FIRM IN THE MARKET THEY NEED TO
HAVE LESS EQUITY AND LESS LONG TERM LIABILITIES OR LOANS BUT
SOME FACTORS LIKE AGENCY PROBLEM MIGHT PLAY AN VITAL ROLE IN
SUCH TYPE OF CASES AND MAY BE DISCOVERED IN FUTURE.
https://www.researchgate.net/profile/Talat_Afza/publication/228320063_Impact_of_Aggressive_W
orking_Capital_Management_Policy_on_Firms'_Profitability/links/0912f50c06d20688c6000000.pdf.
2. MY SECOND RESEARCH PAPER IS FROM US AND IT IS WRITTEN BY –
https://pdfs.semanticscholar.org/4fba/a2174386ee0cc6e90de5d098b9e36962f2de.pdf
https://pdfs.semanticscholar.org/00bd/dc1faf6eb1113b4d01a7ca46cf8a8bdcd662.pdf
4. NOW, BY THIS 4TH POINT YOU MUST HAVE GET MAIN THEME OF MY PROJECT
TO COMPARE WORKING CAPITAL VARIABLES WITH THE FIRM’S
PROFITABILITY but this research paper will take into consideration the Turkish
manufacturing firm from 1998-2007 and it is written by “F.Samiloglu and K.Demirgunes”.
REGRESSION MODEL IS USED IN THIS RESEARCH AND THEY FOUND OUT A/C
RECEIVABLES PERIOD AND INVENTORY PERIOD THEY ARE DIRECTLY
RELATED WITH WORKING CAPITAL AS COMPARED TO OTHER VARIABLES
HAVE SIGNIFICANTLY NEGATIVE IMPACT OF FIRMS PROFIT. This means both of
these variable lengthens profitability decrease and vice-versa. The other variables apart from
these two that affect firm’s profitability are growth and leverage affecting it positively and
negatively respectively which concludes that rise in sales make the profit to grow while debt
have opposite affect if you do any changes in it.
https://scialert.net/fulltextmobile/?doi=ijaef.2008.44.50
5. WORKING CAPITAL V/S PROFITABILITY BY “dr. loannis lazaridis and msc. dimitrios
tryfonidis” ON THE SAME RELATION TALKED ABOVE BUT IN THE COMPANIES LISTED
IN ATHENS STOCK EXCHANGE. THEY OBSERVES THAT THERE IS NEGATIVE
RELATIONSHIP BETWEEN CASH CONVERSTION CYCLY AND PROFITABILITY. So
it looks like operational profitability how working capital will be managed by the firm’s owner or
manager. Researcher observed lower the operational profit is linked with the increase account payable
days.
So, the above could lead us to a conclusion that the firm which do not make much profit actually wait
for longer period of time to pay their bill taking advantage of credit period granted by suppliers. This
negative relation between the profit and a/c receivables tells you that less profitable firm in order to
reduce the cash gap in the cash conversion cycle will try follow a decrease in their a/c receivables.
Likewise, the negative relation between the corporate profitability and inventory period that is case
of sudden fall in sales due to mismanagement of the inventory will lead to trying up for more than
required capital in the expense of profitable operations. SO, IF YOU AS MANGER WANTS TO CREATE
PROFIT FOR YOUR COMPANY, YOU NEED TO HANDLE THE CASH CONVERTION CYCLE CORRECTLY AND
KEEPING EACH DIFFERENT COMPONENT OF WORKING CAPITAL AT OPTIMAL LEVEL.
https://s3.amazonaws.com/academia.edu.documents/37259440/The_relationship_between_w
orking_capital_management_and_profitability_of_listed_companies_in_the_Athens_Stock_E
xchange.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&Expires=1552751251&Si
gnature=wsNNlQpOXsuulRcseXpeF4FDC%2BQ%3D&response-content-
disposition=inline%3B%20filename%3DThe_relationship_between_working_capita.pdf