Working capital management and firm's profitability - A study on commercial firms listed in Vietnam stock market

Abstract

Maximizing firm‟s value is the goal of every profit-based organization. The main objective of this study is to investigate the relationship between working capital and firms‟ profitability in the context of Vietnam. The study used Average Payment Period (APP), Account Receivable Period (ARP) and Inventory Turnover in days (ITD) as measures of working capital and Return on Assets as a measure of profitability. Using panel data methodology for 52 listed commercial companies for the 2011 – 2014 period, the study has found empirical evidence that there is a significant negative relationship between Inventory Turnover in days and Return on Assets; there is insignificant negative relationship between Average Payment Period and Return on Assets and insignificant positive relationship between Account Receivable. The research also found significant relationship of Firm size and Sale growth, which are control variables in the model. From these results, managers in commercial firms are suggested to employing strategies to shorten inventory day outstanding to improve firm‟s profitability. Keywords: working capital, profitability, commercial industry