Working Capital Management Definition
1. Introduction The main focus of this report is to study to what degree of effect the determinants of working capital management have on the retailing industry in Malaysia from 2012- 2016. To narrow this scope, we have chosen 7 listed companies in the retail industry and base our analysis on the annual reports of these companies for the aforementioned 5 years. Our assessment would be based on five factors which are, profitability of the firm, leverage, operating cash flow, size of the firm and lastly, its sales growth, and whether these factors will affect working capital. 1.1. Research Background Working capital management necessitates the connection between a company’s short-term assets and its short-term liabilities. To ensure that a firm is able to continue its operations with no problems and making certain that it has sufficient resources to satisfy both maturing short-term debt as well as future expenses, it should possess an efficient working capital management. The management of working capital involves managing inventories, accounts receivable and payable, and cash. (Sharon N.D.) Smith (1987) states that …show more content…
Therefore business firms possess an optimal level of working capital which maximizes their market value. However, large amounts of inventory and a generous trade credit policy may lead to higher sales. Larger inventory reduces the risk of a stock-out. Trade credit may stimulate sales because it allows customers to assess product quality before paying. For instance, according to Deloof and Jeger, (1996) Aand Deloof (2003). An excellent way for companies to improve their earnings would be to implement an effective working capital system. (Nimalathasam, 2010). The table below shows the empirical relationship between effective working capital management and its
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