The Relationship Between Working Capital Management and Profitabilit
International Research Journal of Finance and Economics ISSN 1450-2887 Issue 49 (2010) © EuroJournals Publishing, Inc. 2010 http://www.eurojournals.com/finance.htm
The Relationship between Working Capital Management and Profitability: A Vietnam Case
Huynh Phuong Dong Faculty of Accounting, Danang University of Economics, Vietnam E-mail: pdong2000@gmail.com Tel: +84989392392 Jyh-tay Su Assistant professor at Southern Taiwan University, No.1 NanTai St Yong Kang City, Tainan County, Taiwan R.O.C E-mail: rogersu@mail.stut.edu.tw Abstract The working capital management plays an important role for success or failure of firm in business because of its effect on firm’s profitability as well on liquidity. The study is based on secondary data collected from listed firms in Vietnam stock market for the period of 2006-2008 with an attempt to investigate the relationship existing between profitability, the cash conversion cycle and its components for listed firms in Vietnam stock market. Our finding shows that there is a strong negative relationship between profitability, measured through gross operating profit, and the cash conversion cycle. This means that as the cash conversion cycle increases, it will lead to declining of profitability of firm. Therefore, the managers can create a positive value for the shareholders by handling the adequate cash conversion cycle and keeping each different component to an optimum level. Keywords: Corporate Profitability, Working Capital management, Vietnam stock market.
1. Introduction
Assets in commercial firm consist of two kinds: fixed assets and current assets. Fixed assets includeland, building, plant, furniture, etc. Investment in these assets represents that of part of firm’s capital, which is permanently blocked on a permanent or fixed basis and is also called fixed capital that generates productive capacity. The form of these assets does not change, in the normal course. In the contrast, current assets consist of raw
The Relationship between Working Capital Management and Profitability: A Vietnam Case
Huynh Phuong Dong Faculty of Accounting, Danang University of Economics, Vietnam E-mail: pdong2000@gmail.com Tel: +84989392392 Jyh-tay Su Assistant professor at Southern Taiwan University, No.1 NanTai St Yong Kang City, Tainan County, Taiwan R.O.C E-mail: rogersu@mail.stut.edu.tw Abstract The working capital management plays an important role for success or failure of firm in business because of its effect on firm’s profitability as well on liquidity. The study is based on secondary data collected from listed firms in Vietnam stock market for the period of 2006-2008 with an attempt to investigate the relationship existing between profitability, the cash conversion cycle and its components for listed firms in Vietnam stock market. Our finding shows that there is a strong negative relationship between profitability, measured through gross operating profit, and the cash conversion cycle. This means that as the cash conversion cycle increases, it will lead to declining of profitability of firm. Therefore, the managers can create a positive value for the shareholders by handling the adequate cash conversion cycle and keeping each different component to an optimum level. Keywords: Corporate Profitability, Working Capital management, Vietnam stock market.
1. Introduction
Assets in commercial firm consist of two kinds: fixed assets and current assets. Fixed assets includeland, building, plant, furniture, etc. Investment in these assets represents that of part of firm’s capital, which is permanently blocked on a permanent or fixed basis and is also called fixed capital that generates productive capacity. The form of these assets does not change, in the normal course. In the contrast, current assets consist of raw
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