The Empirical Research Of The Relationship Between Working Capital Management And Long-term Debt

Long-term Debt decision is one of the most important decision that will affect the development of the enterprise, Working capital management is also vital to the development of the company. The relationship between Long-term debt decision and Working capital management is the reference for a company to make effective management decision.This thesis is based on the big industrial company, after doing some analysis on the financial reports of these companies from 2003 to 2007, useful data can be aquired for empirical study, then we can get the conclusion from the following aspects: the management principle of working-capital, the management of non-cash working-capital, accounts receivable, inventory, current finance lever and the enterprise credit. Through the study, we can easily find that provoke working capital management method is positive to the long-term debt; non-cash working capital is negative to the long-term debt; inventory ratio is positive to the long-term debt. But the other two aspects are uncertain to the long-term debt. As to the accounts receivable, we can see a totally Different conclusion between the beginning increase and the coming increase. When the increase of accounts receivable makes the creditor have a positive attitude to the future of the company, they will be glad to lend money to the company ,and the accounts receivable is positive to the long-term debt, when the accounts receivable increase, the long-term debt increases accordingly; but when the creditor have a negative attitude towards the increase of accounts receivable, they will be reluctant to lend money to the company, and there will be a decrease of long-term debt in accordance with the increase of accounts receivable. In the common sense, when the enterprise has a high credit level, there will be no need to get more long-term debt, and the credit level is negative to the long-term debt. But when there are some economic disasters, such as economic decline, the enterprise will cut down the credit for their customers, the creditor will also cut down the mounts to be borrowed, so the long-term debt will be deducted as the credit level reduced. After analysing the management of the working capital and the long-term debt, the paper will give a constrcutive suggestion to the company about how to manage the long-term debt in accordance with the working-capital. The writer expect the company may make more full use of the capital after the great use of this research.