The impact of working capital management on the profitability - Evidence from Vietnamese food industry
Abstract
To run the successful companies, fixed and current assets play a vital role. The business concern has a major the importance of profitability and liquidity, so managing working capital is required. Generally, whether the company needs to have a larger risk for the higher profitability or not, it minimizes the size of working capital related to the revenue which it operates. If it tend to better its liquidity, it means that it will increase the size of working capital. However, this method is subject to decrease the revenues and therefore it would impact the profit. Therefore, companies need to have a balance between liquidity and profitability. This study analyzes the impact of working capital management on the profitability by using a sample of 28 companies from Vietnamese food industry for a period of 5 years from 2010 to 2014 on Ho Chi Minh Stock Exchange. The components of working capital management consists of the Receivable days, Inventory turnover days, Payable days, Cash conversion cycle, Current ratio and Quick ratio on the Net operating profit of Vietnamese firms of the study. The debt ratio and the size of the firm (calculated by natural logarithm of sales) are the control variables. The research will use Descriptive statistics, Pearson Correlation, Regression analysis to analyze. These tests are used and analyze to interrelate the contribution by previous literatures of some authors with the statistical results.