The effect of working capital management on the profitability of publicly listed firms across the four sectors in the Philippine economy: Industrial sector, mining and oil sector, property sector, and services sector

• Main Authors: Espiritu, Almarie Nicole, Fortuno, Jardel Dean, Montealto, Mary Anne, Pilar, Yrrah Renz Miguel
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Working capital > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/10096
• Institution: De La Salle University

Cash is an essential asset in a company and while holding onto an amount of cash, what should a firm do? Working capital management refers to the management of short-term investments and financing of a company. This study investigates the effect of working capital management, its components (accounts receivables period, accounts payables period, inventory period, and cash conversion cycle) on firm profitability. The study uses a sample of 118 publicly listed firms across the four sectors (industrial sector, mining and oil sector, property sector, and services sector) in the Philippines. This paper adopts a quantitative approach using OLS pooled regression and panel regression in determining the effect of working capital management on firm profitability. The results of this study indicate that working capital management, its components, significantly affects firm profitability. Cash conversion cycle, accounts receivables period, and inventory period are shown to negatively affect profitability, which indicates that as these independent variables increase, profitability decrease and vice versa. On the other hand, accounts payables period is found to positively affect profitability, which indicates that profitability increases together with this variable. And some of the ways to increase a firm's profitability, based on this study are: first is by shortening accounts receivables period, second is by extending accounts payables period, third is by shortening inventory period, and finally keeping the cash conversion cycle at a minimum. Firms can create positive insights from this study by being able to manage working capital effectively and efficiently.