Inadequate Working Capital
Introduction
Working capital management plays a vital role to the survival of firms, has a direct impact on profitability and liquidity of company (Raherman & Nasr, 2007). According to Investopedia, working capital management is a measure of the performance and short-term financial strength of the firm.
Working capital includes that part of the assets of a business are used in the current operation. It includes cash, accounts receivable and inventory. These types of assets are usually temporary. In the accounting concept of working capital is the difference between incoming and out of the fund that is the source and use of funds, (ie net cash flow). In other words, the differences between the current assets and current liabilities are called working capital (Lincohn, 1990).
Trading companies can’t progress without adequate working capital. Inadequate working capital means shortages of inputs, whereas the excess of it leads to additional cost. Therefore, the quantum of working capital in each business company should neither more nor less than what is actually needed. The management must show that the investment funds as working capital in their organizations earn at least as much profit as they will earn profits if the investment is anywhere else. At the same time increase the cost of capital and reserves of fear, field management
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The study will focus on finding working capital management policy and its impact on profitability of 100 listed firmed in Ho Chi Minh Stock Exchange (HOSE) without banking system and financial companies during the period from 2010-2014. Data are extracted from the annual reports of these firms. The formula and abbreviations used for measurement of all the variables: Average Payment period, Inventory Turnover cycle, average Receivable period,
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