Working Capital Management And Corporate Performance

In this study, we use sample of360firms of manufacturing corporations listed onShanghai and Shenzhen stock markets, and analyze the relationship between theworking capital management and corporate performance with the method of principalcomponent analysis and multiple linear regression analysis.The difference with the previous studies is that, the first, the paper also examinesthe company’s working capital management activities in the management of bothefficiency and management policies, and in previous studies often only one aspect ofa separate study; second, the indicator to measure corporate performance is acomprehensive index rather than the usual single indicator. The study mainly consistsof two parts: the first is statistical analysis of working capital management ofmanufacturing companies. second part is the relationship between working capitalmanagement and corporate performance.The results show that: first, the efficiency of working capital management hasbeen improving in recent years overall, the company increasingly focused on themanagement of working capital management and continuously improved accountsreceivable turnover and inventory turnover. Second, China’s listed companies in themanufacturing industry general have been using a sound working capital investmentpolicies and aggressive financing policies. This strategy resulted in two high situationof short-term liabilities and current assets. On one hand it reduced the profitability ofthe enterprises, on the other hand it increased the pressure of corporate debt. Third, itdemonstrates a positive relationship exists between the cash conversion cyclemeasured the efficiency of working capital management with profitability of the firm,it suggest that an appropriate extension of the cash conversion cycle can improvecorporate performance. Fourth, the result also indicates a strong negative relationshipbetween the working capital requirement ratio measured the efficiency of workingcapital management and corporate performance. And this shows that the net workingcapital investment invested in revenue per unit is less, the cost of funds is lower, thecorporate capital invested in long-term assets is more, the profitability of corporate isstronger, the business performance is better. Fifth, working capital investment policyand firm performance negatively correlated, that is, the smaller the liquidity ratio is,the stronger corporate profitability is. Sixth, working capital financing policy andcorporate performance are positively correlated, that is, the more prudent financing policy is, the stronger corporate profitability is, the better business performance is.This indicates that the cost of high risk of aggressive working capital management ismore than the benefit of the lower cost of aggressive working capital management.