Efficiency Of Working Capital Management And Corporate Profitability

Working capital management has gradually become one of the important fields of the system of corporate financial management since 1980s. Since the 1990s, researches of working capital management have gotten significant progress. The relation of working capital and the maximization of enterprise value becomes one of the core fields. On the basis of theory analysis, foreign researchers make empirical studies of the correlation of efficiency of working capital management and corporate profitability, and find negative relationship between the cash conversion cycle and corporate profitability.Working capital is one important part of corporate assets, and is the most dynamic part of corporate capital. Working capital management also follows the general request of corporate financial management. That is to guarantee the long-term planning forecast cash flow smoothly, create value for enterprises, and maximize the value of enterprises. Recent researches are mostly around evaluation indicators, and researchers don't realize the impact of working capital management on corporate capital in our country. The low efficiency of working capital management probably leads to bankruptcy and failure. In fact, under the premise of capital mobility and security, efficient working capital management can improve the application of working capital and liquidity, as well as the overall profitability.In order to analyze the foreign empirical results'applicability to China's capital market, and whether there're any significant differences to manufacturing and retail enterprises of the supply chain, convenient making of specific working capital management policy and make enterprises pay more attention on working capital management, this paper makes an empirical analysis on the correlation of efficiency of working capital management and corporate profitability about China's Shanghai and Shenzhen stock markets'listed companies from 2001 to 2006, and also makes similar studies on manufacturing and retail listed company as sub-samples. In order to reveal the influence of various components of cash conversion cycle on this relationship, this paper also studies the correlation between number of days account receivable, number of days inventories, number of days account payable and corporate profitability. This paper firstly introduces recent research results of the correlation of efficiency of working capital management and corporate profitability, proposes research purposes and significances, research ideas and methods. On the basis of summary and evaluation of related literature both home and abroad, this paper proposes its empirical research perspective and category. After theoretical analysis, this paper puts forward four basic assumptions. Those are, assumption 1: the negative correlation between cash conversion cycle and corporate performance, assumption 2: the negative correlation between number of days account receivable and corporate performance, assumption 3: the negative correlation between number of days inventories and corporate performance, assumption 4: the negative correlation between number of days account payable and corporate performance. Finally, put relevant sample data into the regression model, make a comprehensive analysis of the empirical results, and then get the conclusions of this paper.This paper makes breakthrough on research methods, perspectives and classification. This paper compares the conversion cycles of our country with that of foreign countries, and makes regression analysis on their correlation. This paper not only studies efficiency of working capital management and corporate profitability about entire industries'listed companies, but also makes analysis on manufacturing and retail listed company as sub-samples. This paper not only researches the correlation between cash conversion cycle and corporate performance, but also the correlation between components of cash conversion cycle and corporate performance, and makes a detailed analysis of the negative correlation between number of days account payable and corporate performance combining with the extraordinary circumstances of China's changing economic.