ASSIGNMENT SAMPLE ON WORKING CAPITAL MANAGEMENT
Introduction
Capital management is a business strategy that ensures the entire operation of the individual company. Working capital management can be managed and compared by the ratio analysis methods. There are four components of working capital management such as “trade payable, bank balance, inventory, and trade receivable. These specific components are important to maintaining the accounting strategy of the business. Total assets and current liabilities are described by the working capital management. The cash flow schedule of an individual organization is clearly described by the working capital management. The net assets and current liabilities can be converted into cash by the working capital management cycle.
Literature review
Importance of working capital management
Working capital management can help to maintain the reliable operation of the individual business organization. The revenue and debt management systems can easily be defined by the WCM. Capital management focused on the inventory management system which is effective to maintain outcomes and profitability of the organizations. Return on capital employed can be improved by the smooth operational activities. Reliable business performance can depend on the working capital management. Individual payments activity of the organization can be controlled by the capital management which is effective to maintain credit and solvency profile of individual business organizations (Pirttilä et al. 2020). Sometimes small and medium business organizations can monitor business performance by the capital management, which is an efficient way to recognize business performance. Sometimes financial influencers depend on the net outcomes of the working capital management to identify the company’s performance.
The aims and objectives of capital management are to monitor and control organizational activities. The magnitude of the business structure can be described by the WCM and which describes the accurate direction to enhancing basic outcomes. Corporate profitability and interactive relationships among the managers are balanced by capital management. The FAM (Financial Asset Management) business model can recognize the long term assets and liabilities of the company. The net cash flows and operational activities are systematically controlled by the working capital management. Most of the manufacturing industries can track entire operational activity by capital management (Afrifa and Tingbani, 2018). The accounts and financial activities of the business can be described by the working capital management. The industrial activity can be systematically managed by the FAM business model, which explores industrial activities to describe the company’s succession plan.
Companies earning and profitability
Companies’ net profitability and earnings are easily compared by the analysis of the financial statements. Return on investment activities describes the net profitability of the company and also indicate the difference between profitability and losses. Companies’ earnings and profitability sometimes depend on the Fiscal policy which describes the economical condition of the individual industry. Most of the organizations recognize the economical condition of the business by the specific policy. Capital employed and return on investment are sometimes described by the financial statement analysis (Chen et al. 2020). Capital management and quality management are similar in organizational culture because both can describe the economical position of the organization. Working capital management describes how a business can add profitability by using short term assets.
The inventory and accounts payable describe the net earnings and profitability of the company. Working capital management can be focusing on the net earnings and profitability. The net earnings and final profitability of the business organization can be controlled by the financial activity. The financial activity of the business can systematically describe numerous financial and non financial sources of the business (Pirttilä et al. 2020). The accountability and principles of the organization describe the basic performance level of the business company. The customer retention plan of the organization is improving by innovation. Most of the customers are engaged by the service quality. A business organization has described the basic performance by the working capital changes.
Identifying debt management and revenue
Changes in debt management and revenue are systematically recognized by the capital management. Budgeting and financial planning is the proper way which can easily monitor the debt management of the company. The outcomes or business profit is systematically described by budget planning. Sometimes debt consolidation and debt recycling are identified by capital budgeting and minimize them to positive outcomes (Moussa, 2018). The net profitability and outcomes of the organization can be described by capital management. Financial statement analysis has the potential to investigate corporate profitability. Numerous firms and companies are following some business cycles to carry out operational activities. Debt management and final revenue both are opposite factors and are described by the working capital management. The new ideas and objectives are continuously improving corporate profitability. Fixed capital intensive and working capital are sometimes separate and these can affect profitability.
Working capital management on company profitability
To maintain companies’ profitability and working capital financial statements is the effective way. Corporate financial activities and performance can be improved by working capital management. Net profitability, as well as the liquidity of the operational level, depends on the working capital management. Sometimes individual companies and groups are monitoring business profit by capital management. Working capital management plays a potential role in managing threats and weaknesses. Sometimes the existing relationship between profitability and liquidity is dependent on the working capital changes. Capital budgeting is another potential factor of the individual business organization because it can establish relationships between the net revenue and other business sources (Godswill et al. 2018). Organizational performance level can depend on the organization. The net profitability and revenue are described by the capital policies such as debit and credit policies.
Relationship between corporate profitability and working capital management
The relationship between corporate profit and capital management plays an effective role in measuring gross operating margin. The net working capital and conversion cycle describe the basic profitability of the business. Most business organizations are continuously improving operational activity by investment policy. Sometimes individual organizational performance levels depending on the capital structure. The capital structure of the organization depends on the working capital management that is suggested by individual managers to measure the gross margin of the operation (Gonçalves et al. 2018). Corporate profitability always depends on working capital management because investment policy can easily improve organizational performance levels. The relationship between corporate profitability and capital management is improving by the cash conversion cycle. Sometimes organizational performance level and activity are described by the working capital management. Apart from this working capital management is improving the relationship between profitability and cash conversion cycle.
Figure 1: Working capital management
(Source: Gonçalves et al. 2018)
Financial leverage between working capital and profitability
Capital and profitability are potential for financial leverage that can improve the capital structure of the business organizations. Working capital is measured by the cash conversion cycle and gross margin rate describes the working capital management. The financial leverage extends the capital structure of the company. The ratio and current liabilities are described by the working capital management (Al-Mawsheki et al. 2019). The financial operations and debt management can be described by the financial statement. The financial health of the operation describes the financial activity and adequate cash flow can easily describe expenses and short term debts of the operations.
Figure 2: Working capital management
(Source: Korent and Orsag, 2018)
Financial leverage is to find out the additional assets or funds of the company. In a payback period, total interest and principles are described by the financial leverage. Changes in working capital and profitability can be recognized by the working capital management (Korent and Orsag, 2018). Changes in working capital management can directly impact the company’s profitability. The debt and equity are described by the financial leverage and also describe the excessive losses in the industry. Repaying the business debt is difficult and is measured by the financial leverage of the organization. Potential investors and shareholders can find out the financial leverage of the organization.
Methodology
Research design
Research philosophy
Positivism research philosophy is included in the research and it can directly affect capital management. Positivism research philosophy describes the phenomenon data that gather and analyze numerous potential pieces of information of the research. Positivism research philosophy describes and formulates numerous quotations of the research. The reliable business performance is focussed on the positivism research philosophy. Individual organizational structure and behavior can be improved by the research philosophy. Sometimes future researchers can find several opportunities for research (Kusuma and Dhiyaullatief Bachtiar, 2018). Flexible performance can easily be achieved by the knowledge and skills of the researchers. Positivism philosophy accurately analyzes and measures the results by several laws and predictions. Positivism research philosophy describes the accurate period of the research and maintaining an accurate schedule to complete the overall research work.
Research approach
The understanding and knowledge of future researchers are improved by the research approach. Deductive research approaches are included for the specific research. Deductive research approaches the risk and threats of the organization and eliminates them to improve future possibilities. The inductive research approach can not be used for specific research because it is not able to describe potential information of the research. As a result, future researchers are unable to understand the potential stages of the research. The deductive research approach is more efficient than the inductive research approach as much as time consuming (Zimon and Tarighi, 2021). Sometimes poor knowledge and abilities are unable to control an inductive research approach. The deductive research approach is more effective instead of the inductive research approach.
Figure 3: Research Approach
(Source: Basyith et al. 2021)
Research strategy
A qualitative research strategy is included for the specific research and it can usually gather several data for future opportunities. Individual researchers can find out future opportunities of the research. Action oriented research sometimes includes quantitative surveys and that is useful to make future steps against difficulties. The common approaches can respond to research quotations to respond and identify efficient planning for data analysis strategies. Sometimes issues are more complex and quantitative data analysis methods involve systematic processes (Gołaś, 2020). Future researchers can find out future opportunities of the research.
Methods
Population/sample
Purposive sampling is selected for the specific research and also describes the profitable sample of the firm. Sampling refers to selecting specific topics from the research by using knowledge and experience. Purposive sampling develops the basic knowledge and skills of the individual researchers to represent the research results (Basyith et al. 2021). Sampling methods are common methods of individual research that include implementation plans for future opportunities. Research design and sampling are useful for future researchers and expanding basic knowledge of them. Future knowledge and abilities are improved by the data sampling methods which are an efficient way to enhance the future growth of the organization.
Instrument
Specific techniques can easily analyze the accurate techniques to improve the basic knowledge of future researchers. Measurement and development tools can monitor and control research areas to develop research abilities. Future researchers can analyze and identify numerous elements of the research (Mättö and Niskanen, 2021). The specific techniques are measurable by the knowledge and abilities of the individual researchers. The instrument method is time saving and describes the accurate results. As a result, future researchers are improving their knowledge and skills.
Data collection
Secondary data collection methods are included for the specific research which are books, journals, and popular websites. Data collection methods are the important factors of research and can gather several potential pieces of data for future researchers (Högerle et al. 2020). The researchers can easily expand their basic knowledge and skills by the secondary data collection methods. The secondary data are collected from the popular websites, books and journals.
Measurement
Measurement is a specific technique that can easily compare future elements of the research. Individual researchers identify numerous objectives and goals by specific methods. The rules and regulations of the management are systematically described by the specific methods.
Data Analysis
Secondary qualitative data analysis methods are included in the specific research. The definition and measurements of the several stages of the research are gathering potential information for future researchers. Qualitative secondary analysis is focused on the research questions to utilize potential data for future research. Sometimes unemployment rates and census rates are described by the data analysis methods. From the data analysis methods individual researchers are able to find out the numerous difficulties of the organization.
Ethics
Ethics consists of the standard behavior of numerous objectives and which is collected from books and popular websites. The collected data are based on ethical theories such as normative and applied ethics. The accountability and principles are improved by descriptive ethics. Descriptive ethics are based on applied ethics which can usually monitor and control the specific research. The ethics or moral philosophy of the research is improving basic concepts of the individual researchers. Sometimes ethical behavior of the researchers is improved by effective communications. Sometimes the ethical issues are eliminated by the decision making process of the individual organization (Dalci et al. 2019). The business profitability and revenues are directly identified by the financial analysis of the research. The skills and abilities of the researchers are systematically improved by the ethical principles. The capital management and net profitability are improved by the accurate relationship among the researchers.
Sometimes core behavioral norms are systematically included by the ethics. Sometimes professional ethics can maintain a business environment and specific processes can improve the basic knowledge and abilities of the future researchers. Sometimes cultural norms and activities are included by the professional ethics (Kayani et al. 2019). Sometimes ethical principles ensure the new pathway to describe the basic performance level of the company. The goals and objectives of the research describe the business structure as well as efficiency level. Working capital management describes the complex environment of the research which improves leverage profitability of the research. Sometimes individual business organizations are able to compare the overall activities of the management. The future researchers are able to collect several data by the secondary sources such as books, journals and popular websites.
Individual research is needed to follow the positive outcomes of the research. The secondary data sources can collect potential data for the future researchers. The collected information satisfied numerous researchers and it can easily expand the knowledge and abilities of the future researchers. The potential data is gathered from popular websites, books, journals and other popular sources. Sometimes authentic information is provided by the data collection methods and future researchers can improve their knowledge and skills.
Limitations
Secondary qualitative strategies require too much knowledge and skills of the researchers. Individual researchers are unable to provide potential information that is the biggest difficulty of the research. Sometimes secondary sources are unable to provide accurate information. As a result, future researchers do not understand the accurate sources of the research. Sometimes mixed methods did not provide qualitative strategy with effective information (Soukhakian and Khodakarami, 2019). Sometimes lack of communication of the research does not provide secondary sources of the organizations. Qualitative business strategies are not able to relate to the research components. The potential data and pieces of information are collected from the public sources, journals, and books, and sometimes researchers are audible to understand the specific pieces of information.
Reference list
Afrifa, G.A. and Tingbani, I., 2018. Working capital management, cash flow and SMEs’ performance. International Journal of Banking, Accounting and Finance, 9(1), pp.19-43. Available at: https://www.researchgate.net/profile/Enrique-Diaz-13/publication/346310066_Working_Capital_Management_and_Quality_Management_Systems_evidence_from_an_emerging_economy/links/5fbe076a458515b7976a3739/Working-Capital-Management-and-Quality-Management-Systems-evidence-from-an-emerging-economy.pdf
Al-Mawsheki, R.M., Ahmad, N.B. and Nordin, N.B., 2019. The effects of efficient working capital management and working capital policies on firm performance: Evidence from malaysian manufacturing firms. International Journal of Academic Research in Accounting, Finance and Management Sciences, 1(3), pp.59-69. Available at: https://www.academia.edu/download/65241651/3013.pdf
Basyith, A., Djazuli, A. and Fauzi, F., 2021. Does working capital management affect profitability? empirical evidence from indonesia listed firms. Asian Economic and Financial Review, 11(3), pp.236-251. Available at: https://archive.aessweb.com/index.php/5002/article/view/2071
Chen, Y., Diaz, E., Sensini, L. and Vazquez, M., 2020. Working Capital Management and Quality Management Systems: evidence from an emerging economy. International Journal of Business Management and Economic Research, 11(4), pp.1861-1868. Available at: https://www.researchgate.net/profile/Enrique-Diaz-13/publication/346310066_Working_Capital_Management_and_Quality_Management_Systems_evidence_from_an_emerging_economy/links/5fbe076a458515b7976a3739/Working-Capital-Management-and-Quality-Management-Systems-evidence-from-an-emerging
Dalci, I., Tanova, C., Ozyapici, H. and Bein, M.A., 2019. The moderating impact of firm size on the relationship between working capital management and profitability. Prague Economic Papers, 28(3), pp.296-312. Available at: https://www.ceeol.com/search/article-detail?id=788507
Godswill, O., Ailemen, I., Osabohien, R., Chisom, N. and Pascal, N., 2018. Working capital management and bank performance: Empirical research of ten deposit money banks in Nigeria. Banks & bank systems, (13, Iss. 2), pp.49-61. Available at: https://www.ceeol.com/search/article-detail?id=695801
Gołaś, Z., 2020. Impact of working capital management on business profitability: Evidence from the Polish dairy industry. Agricultural Economics, 66(6), pp.278-285. Available at: https://www.mdpi.com/1065590
Gonçalves, T., Gaio, C. and Robles, F., 2018. The impact of Working Capital Management on firm profitability in different economic cycles: Evidence from the United Kingdom. Economics and Business Letters, 7(2), pp.70-75. Available at: https://dialnet.unirioja.es/servlet/articulo?codigo=6517962
Högerle, B., Charifzadeh, M., Ferencz, M. and Kostin, K.B., 2020. The development of working capital management and its impact on profitability and shareholder value: evidence from Germany. Strategic Management, 25(2), pp.27-39. Available at: http://scindeks.ceon.rs/article.aspx?artid=1821-34482002027H
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Korent, D. and Orsag, S., 2018. The impact of working capital management on profitability of Croatian software companies. Zagreb International Review of Economics & Business, 21(1), pp.47-65. Available at: https://hrcak.srce.hr/200887
Kusuma, H. and Dhiyaullatief Bachtiar, A., 2018. Working capital management and corporate performance: evidence from Indonesia. Central European Management Journal, 26(2), pp.76-88. Available at: https://www.ceeol.com/search/article-detail?id=678377
Mättö, M. and Niskanen, M., 2021. Role of the legal and financial environments in determining the efficiency of working capital management in European SMEs. International Journal of Finance & Economics, 26(4), pp.5197-5216. Available at: https://onlinelibrary.wiley.com/doi/abs/10.1002/ijfe.2061
Mazlan, A.R. and Leng, C.Y., 2018. The moderating effect of working capital management on the relationship between working capital determinants and firm performance. Indian-Pacific Journal of Accounting and Finance, 2(1), pp.38-48. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3450229
Moussa, A.A., 2018. The impact of working capital management on firms’ performance and value: Evidence from Egypt. Journal of Asset Management, 19(4), pp.259-273. Available at: https://link.springer.com/article/10.1057/s41260-018-0081-z
Nastiti, P.K.Y., Atahau, A.D.R. and Supramono, S., 2019. The determinants of working capital management: the contextual role of enterprise size and enterprise age. Business, Management and Economics Engineering, 17(2), pp.94-110. Available at: https://www.ceeol.com/search/article-detail?id=857632
Pirttilä, M., Virolainen, V.M., Lind, L. and Kärri, T., 2020. Working capital management in the Russian automotive industry supply chain. International Journal of Production Economics, 221, p.107474. Available at: https://www.sciencedirect.com/science/article/pii/S0925527319302841
Soukhakian, I. and Khodakarami, M., 2019. Working capital management, firm performance and macroeconomic factors: Evidence from Iran. Cogent Business & Management, 6(1), p.1684227. Available at: https://www.tandfonline.com/doi/abs/10.1080/23311975.2019.1684227
Zimon, G. and Tarighi, H., 2021. Effects of the COVID-19 global crisis on the working capital management policy: Evidence from Poland. Journal of Risk and Financial Management, 14(4), p.169. Available at: https://www.mdpi.com/1065590
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