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Working Capital Case Study

1286 Words6 Pages

Profitability is great but it is not enough to become a successful company as a well-managed working capital is equally as important. As a way to avoid bankruptcy in poor situations, companies can use credits or sell off short-term assets to get capital for payments (Pass & Pike, 2007).
In order to ease the managing of working capital, senior management use cash a conversion cycle as measurement to help them to keep an eye on the level of working capital they have in different periods of time. They can use different measures but cash conversion cycle is the more common one. Factors impact on Working Capital Management.
There are many factors which have an impact on the management of working capital such as company’s Profitability, Operating …show more content…

And based on that the company operating profitability will get higher. In disparity, in the case of lengthen of cash conversion cycle, the cash will be the reason of holding the organization’s operation activities, where the chances will be limited for any other idea for any other investment of this cash flow. Accordingly, decreasing in the profitability of the company will come to the light. In such cases, the relation between cash conversion cycle the profitability of company will be negative. (Eljelly, …show more content…

A positive effect of the factors of inventory period and accounts receivable period and the negative effect of the factors of accounts payable period could explain the effect of on company profitability. As long as the inventory period is long, the cost get in delay of goods and/or service supply will get lower. Meanwhile, in case of the accounts receivable period is long, the credit sales gain is higher. And the lower the accounts payable period, the higher renown gain for lending opportunities. Closing of the three impacts into one area, could clarify the reason behind increasing in the profitability of the company due to the long cash conversion cycle. On the opposite side, company profitability maybe harmed by minimizing the cash conversion cycle period. a result of lowering inventory conversion period The firm could face a lack in inventory, credit customers will be lost as decreasing accounts receivable period, and obstruct its credit standing as extending the accounts payable period. In those cases, a positive relationship will come to the light between cash conversion cycle with company profitability. (Mathuva, 2010)

Feature between profit and profitability of a firm
In general, profit is measured by earning the firm has from operational and business activity. Profit usually meet the main reason of each business which is the interest of business owners. In most

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