The Performance Analysis Of Working Capital Management In Retail And Wholesale Industry

Trade credit emerges and spreads with the development of economy. The receivables and payables financing on the basis of trade credit can release more funds, improve the operation efficiency of capital management. Working capital management, as one of the major capital management and corporate finance, arising attention of firm managers, emerges on this context. Effective working capital management can increase profit for firms. We choose the retail and wholesale industry as subject, for it has the very special characteristic of working capital management, especially it confronts unprecedented competition and shocks. This paper regards retail and wholesale industry as research object, exploring the relationship between working capital management and performances. As far as we know, we lack the related research.Working capital captures multiple dimensions of firms’ adjustments to working capital management and profit performances. After introduction of working capital as well as retail and wholesale theory. We summarize its characteristic by the whole industry and its main business. Through analyzing assets, liabilities, liquidity and profitability, we conclude that firms in retail and wholesale industry employ conservative investment strategies and aggressive financing strategies.We use fixed effect model to explore the relationship between working capital management and firm performance. We employ 147 firms from the year of 1991 to 2013 listed on the Shanghai stock exchange and Shenzhen stock exchange. Results say that profit proxy for profitability is significantly related with cash conversion cycle proxy for working capital efficiency. When cash conversion cycle increases, profit will decline. Profit is significantly negative with accounts receivable cycle and inventory cycle, and is significantly optimistic with accounts payables, firm size and board size. Firms can rise their profit in the range of trade credit, by accelerating accounts receivable duration, shortening inventory duration and delaying accounts payables duration to suppliers.Based on the results of the study, in the context of reality, we analyze the relationship between working capital management and profitability and the reasons in order to provide constructive suggestions and theoretical basis for the management and operation of working capital.