Analysis Of The Correlation Between Working Capital Management And Profitability

Management of working capital is often overlooked by managers in relation to the volume of business.Working capital is an important part of the company’s assets,but also the most dynamic part of the company’s assets.The higher the level of working capital management,the faster the capital circulation,the faster the growth of assets,and the increase of the profit level.Companies that implement the OPM strategy can generate additional capital,increase investment and R&D efforts through working capital management.This may be the key to the success or failure of the acquisition,it may be the key to the choice of cash or debt financing for strategic projects financing.Then what benefit the working capital management can bring for the enterprise,whether the working capital can improve the level of corporate profits,the analysis and research to these problems,will provide sufficient reference for managers to make decisions to improve management efficiency and for investors to make the right decisions.This paper analyzes the relationship between working capital management and profitability.This paper uses the financial statements of listed companies to apply the concept of working capital requirement.Use The cash conversion cycle,Ratio of working capital requirements to operating income,Ratio of working capital to total assets as the index of ability tomanagement of working capital.Analyse the relationship between the ability of the enterprise and the ROA in the subdivision industry respectively according to the SW industry classification of business segments by using China’s Shanghai and Shenzhen stock market 2008-2015 sample of listed companies.It is found that the working capital management level is an important factor affecting the profitability of enterprises.In most industries,there is a negative correlation between the cash conversion cycle and ROA,that is,the shorter the cash conversion cycle,the stronger the capacity,the higher the profitability of the enterprise.In most industries,there is a negative correlation between Ratio of working capital requirements to operating income and ROA,that is,the smaller the ratio,the stronger the capacity,the higher the profitability of the enterprise.The correlation between Ratio of working capital to total assets and ROA is not strong enough.In the last chapter,the author puts forward the method of improving the working capital management level of enterprises,and puts forward the new ideas of investment decision and quantitative stock selection.