...E-mail: pmsolano@um.es * Financial support from Fundación CajaMurcia is gratefully acknowledged. EFFECTS OF WORKING CAPITAL MANAGEMENT ON SME PROFITABILITY ABSTRACT The objective of the research presented here is to provide empirical evidence about the effects of working capital management on the profitability of a sample of small and medium-sized Spanish firms. With this in mind, we collected a panel of 8,872 SMEs covering the period 1996-2002. The results, which are robust to the presence of endogeneity, demonstrate that managers can create value by reducing their firm’s number of days accounts receivable and inventories. Equally, shortening the cash conversion cycle also improves the firm’s profitability. Keywords: Working capital, profitability, SMEs. JEL codes: G3, G32. EFFECTS OF WORKING CAPITAL MANAGEMENT ON SME PROFITABILITY 1.- Introduction The corporate finance literature has traditionally focused on the study of longterm financial decisions. Researchers have particularly offered studies analyzing investments, capital structure, dividends or company valuation, among other topics. But the investment that firms make in short-term assets, and the resources used with maturities of under one year, represent the main share of items on a firm’s balance sheet. In fact, in our sample the current assets of small and medium-sized Spanish firms represent 69.48...
Words: 5696 - Pages: 23
...SCINECES | ISLAMIC ACCOUNTING AND FINANCE | MASTER OF SCIENCE (FINANCE) | ACC6810 | ACCOUNTING IMPLICATIONS OF JIONT MUDARABAH (MUDARABAH MUSHTARAKAH) SUBMITTED TO: Prof. Dr. Abdul Rahim Abdul Rahman Basheer Hussein Altarturi G1111009 Semester 1 2012 Contents 1 Introduction 3 2 Mudarabah in a Traditional Viewpoint 4 2.1 Traditional Mudarabah; an Overview 4 2.2 Business Issues in the Traditional Mudarabah 5 3 Introduction to the Joint Mudarabah (Mudarabah Mushtarakah) 6 3.1 The Joint Mudarabah (Mudarabah Mushtarakah) Concept 6 3.2 Main Features of the Mudarib Mushtarak 8 3.2.1 The Conditions Issue 8 3.2.2 Capital Guarantee Issue 8 4 Accounting Issues in Mudarabah Contract 9 4.1 Profit Distribution 9 4.2 Reporting and Presentation 12 4.3 Agency Problem 13 5 Conclusion 14 6 Bibliography 16 Introduction Islamic banking and finance (IBF) emerged as an alternative from conventional banking and finance. IBF are different from conventional banking and finance as their objectives, operations, principles and practices must compliance with Islamic ethics and Islamic law (Shari’ah). Among other things, Shari’ah prohibits dealing in interest (riba), gambling and undertaking speculative transactions which subject matter and outcome are unknown (gharar), while it requires transactions to be lawful (halal). Therefore, IBF have tended to modify the conventional banking and finance, interest model to non-interest operations...
Words: 4229 - Pages: 17
...Lawrence Sports Simulation FIN/571 Corporate Finance Prof. Ricardo Rivera Matos May 29, 2012 University of Phoenix * Lawrence Sports Simulation * The process of taking risks will define if a company will emerge from a financial situation. The business relationships will suffer, but if the high risk is in a short term basis, probably this will help both parts to comprehend why is important to keep good finance health when an emergency situation occurs. * Lawrence Sports is a 20 million revenue company that manufactures and distributes equipment and preventive gear for baseball, football, basketball, and volleyball. Mayo Stores is the principal customer of Lawrence Sport. Mayo also is the world leading retailer, with 3,000 stores with operations in United States, Canada, South America, and Europe. Lawrence sources all its materials from Gartner Products and Murray Leather Works. * Robert Dent is the Key Account Manager of Mayo Stores. He has shown an impressive track record in building and excellent and profitable relationship with Mayo. Ann-Wu Head is the head of vendor relationship. She feels that Lawrence Sports’ bargaining power with Gartner is restricted since Lawrence Sports is not a major customer for Gartner. She finds Murray the more flexible of the two vendors and she is looking for more vendors like them. She feels that Murray is likely to run deep financial troubles if Lawrence Sports stretches payment beyond a limit. * As managers we...
Words: 2015 - Pages: 9
...ZIMBABWE SCHOOL EXAMINATIONS COUNCIL (ZIMSEC) ADVANCED LEVEL SYLLABUS BUSINESS STUDIES 9198 EXAMINATION SYLLABUS FOR 2008-2012 2 BUSINESS STUDIES ZGCE Advanced Level 9198 CONTENTS Introduction Syllabus Aims Assessment Objectives Scheme of Assessment Curriculum Content Notes for Guidance Resource List PAGE 2 2 2 3 3 10 25 3 INTRODUCTION 1.1 The aim of this syllabus is to enable Centres to develop Business Studies courses that are suitable for Advanced Level candidates. The syllabus contains largely the same body of curriculum content as the Management of Business Advanced Level syllabus (9368) and AICE Business Studies syllabus (0128) which previously were examined by UCLES. Although no previous study of the subject is assumed by the syllabus, it would be recommended that students should have done 'O' Level Business Studies 1.2 1.3 2 SYLLABUS AIMS The syllabus is intended to lead to courses that will encourage students to: 2.1 2.2 Understand and appreciate the nature and scope of business and its role in society; Develop critical understanding of organisations, the markets they serve and the process of adding value. This should involve consideration of the internal workings and management of organisations and, in particular, the process of decision making in a dynamic environment; Be aware of the economic, environmental, ethical, governmental, legal, social, technological etc issues associated with business activity; Develop skills in:...
Words: 7797 - Pages: 32
...105. TELECOMMUNICATION SERVICES A) Date of Introduction: 01.06.2007 vide Notification no. 23/2007-S.T.,dated 22.05.2007 (B) Definition and scope of service: “Taxable Service” means any service provided or to be provided to any person, by the telegraph authority in relation to telecommunication service. (Section 65 (105) (zzzx) of Finance Act, 1994 as amended) “Telecommunication service” means service of any description provided by means of any transmission, emission or reception of signs, signals, writing, images and sounds or intelligence or information of any nature, by wire, radio, optical, visual or other electromagnetic means or systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception by a person who has been granted a licence under the first proviso to sub-section (1) of section 4 of the Indian Telegraph Act, 1885 (13 of 1885 ) and includes— (i) voice mail, data services, audio tex services, video tex services, radio paging; (ii) fixed telephone services including provision of access to and use of the public switched telephone network for the transmission and switching of voice, data and video, inbound and outbound telephone service to and from national and international destinations; (iii) cellular mobile telephone services including provision of access to and use of switched ...
Words: 5824 - Pages: 24
... Does debt create value 2- Study d. Definition and process e. Advantages and disadvantages f. Trading debts and financial crisis g. Trading debts in the world h. Cases and applications: i. Sukuk ii. Options iii. Rescheduling of debt iv. Account receivable factoring 3- Conclusion 4- References Introduction: The recent financial crisis has proven that most of the economists and financial experts need to reconsider their views in relation to the proper financial system and also to the financial transactions. One of the major factors behind this crisis was the lack of realism in the capital market and financial transactions. However there were voices during and after the crisis claim such financial crisis would have been avoided, if asset-backed Islamic finance were adopted. It is well known that sale of debts is one of the area that have been criticized by many Islamic financial supporter since years. However, nobody can ignore that the debt market is a very important source of capital in the west. To feel the importance of the subject matter of this paper, let us look at some useful information from USA, as the Unites States’ debt market is one of the biggest...
Words: 3800 - Pages: 16
...International Review of Finance, 11:1, 2011: pp. 1–17 DOI: 10.1111/j.1468-2443.2010.01125.x Two Common Problems in Capital Structure Research: The FinancialDebt-To-Asset Ratio and Issuing Activity Versus Leverage Changes IVO WELCH Brown University, RI and NBER ABSTRACT This paper points out two common problems in capital structure research. First, although it is not clear whether non-financial liabilities should be considered debt, they should never be considered as equity. Yet, the common financial-debt-to-asset ratio (FD/AT) measure of leverage commits this mistake. Thus, research on increases in FD/AT explains, at least in part, decreases in non-financial liabilities. Future research should avoid FD/AT altogether. The paper also quantifies the components of the balance sheet of large publicly traded corporations and discusses the role of cash in measuring leverage ratios. Second, equity-issuing activity should not be viewed as equivalent to capital structure changes. Empirically, the correlation between the two is weak. The capital structure and capital issuing literature are distinct. I. INTRODUCTION Leverage is defined as the sensitivity of the value of equity ownership with respect to changes in the underlying value of the firm. Empirically, leverage ratios are frequently independent variables (sometimes as part of a hypothesis, sometimes as a control). Leverage ratios are also the dependent variable in the empirical capital structure literature. This literature tries...
Words: 7159 - Pages: 29
...CANDIDATE FOR VICE PRESIDENT FOR EXTERNAL AFFAIRS SPECIFIC PLAN OF ACTION I. Marketing Communications and Publicity a. Project Dataverse: Your Universal Database * Compacting the logistics (concessionaire, services and technicals) and marketing (companies and feasible sponsors) database into one ultimate document, the goal is to efficiently collect significant information regarding these records for easiness and alleviation. * For all intended purposes, the DataVerse would be on a Google Docs Spreadsheet for extensive view for all. b. Marky: Your Marketing Phone * The organization uses a marketing phone, Marky for brevity, for sponsor callings, corporate apprenticeships and the like. The Finance and Properties Committee is responsible for the irregular loading of Marky. * This year, we aim to concretely have an org marketing phone, not owned by anyone but by everyone. c. Marketing 101: Seminar on Marketing Process * We want to produce not just academically-challenged students but also externally-involved citizens. This goals to teach those applicants to learn how to market properly, through hand-outs, speech tutorials and situational analyses. d. Three Months Rule: Marketing Time Frame * The committee is responsible for the marketing strategy by the organization, with the help of the assigned ad-hoc head. We would like to fix an efficient time frame for the marketing process: that is minimum...
Words: 2030 - Pages: 9
...“The relationship between working capital management and profitability of listed companies in the Athens Stock Exchange” Dr Ioannis Lazaridis Professor University of Macedonia* Department of Accounting & Finance MSc Dimitrios Tryfonidis PhD Candidate University of Macedonia* Department of Accounting & Finance *156 N. Egnatia Str. 54006 Thessaloniki Greece Tel.: 0030 2310 891697 Fax: 0030 2310 891650 E-mail: lazarid@uom.gr Abstract In this paper we investigate the relationship of corporate profitability and working capital management. We used a sample of 131 companies listed in the Athens Stock Exchange (ASE) for the period of 2001-2004. The purpose of this paper is to establish a relationship that is statistical significant between profitability, the cash conversion cycle and its components for listed firms in the ASE. The results of our research showed that there is statistical significance between profitability, measured through gross operating profit, and the cash conversion cycle. Moreover managers can create profits for their companies by handling correctly the cash conversion cycle and keeping each different component (accounts receivables, accounts payables, inventory) to an optimum level. Introduction Capital structure and working capital management are two areas widely revisited by academia in order to postulate firms’ profitability. Working capital management have been approached in numerous ways. Other researchers studied the impact of...
Words: 4830 - Pages: 20
...Choosing you Banking Partner Managing your Banking Relationship As a finance manager, managing banking relations has been both a difficult and challenging task. Many treasurers inherited banking relationships that had to be maintained with the various banks that composed the corporation’s core group while achieving their main objective: to ensure that all the company’s needs were met reliably and within a reasonable cost (Zietlow and Maness 289). But what are the things that a finance manager should focus on when trying to determine what bank(s) to chose? Is it based solely on cost? How often so finance managers shop around? Or is it better to just sit tight with the current option as the familiarity with your current bank and their way of doing business is worth the “potential” cost savings of going elsewhere and having to learn their system. Historically, CFO and finance managers were prompt to consolidate their banking needs and services within one banking institutions but as the banking landscape keeps morphing/merging and more banks keep adopting AFP standards, it has become increasingly easier to understand the workings of not only your banking institution, but all others as well – which leads to shopping around for cheaper alternatives for different services. From June to September of 2012, Ernst and Young conducted telephone interviews with treasurers, CFOs, and other senior financial executives. The companies interviewed were spread among 9 industry sectors...
Words: 848 - Pages: 4
...Simply stated, “good management of working capital will generate cash, improve profits and reduce risks” (Anonymous, 2007, para. 2). Lawrence Sports, a manufacturer and distributor of sporting goods equipment, is currently facing a number working capital and cash flow management issues largely related to past due payment of their largest customer, Mayo Stores. This paper will take a closer look at Lawrence Sports’ simulation and identify the issues, goals, potential solutions, evaluate risks and define metrics to measure the success of the working capital management strategy selected to address the short and long-term financing needs of the organization. Situation Analysis Issue and Opportunity Identification Lawrence Sport’s finance team did not carefully identify Lawrence’s business goals in terms of developing a working capital policy and a cash budget to...
Words: 4380 - Pages: 18
...or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include labor(employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large. These are some definitions given under the Corporate governance; The simple meaning of the Corporate governance is the relationship between corporate managers, directors and the providers of equity, people and institutions who save and invest their capital to earn a return. It ensures that the board of directors is accountable for the pursuit of corporate objectives and that the corporation itself conforms to the law and regulations. - International Chamber of Commerce "Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society “ "-(Sir Adrian Cadbury in 'Global Corporate Governance Forum', World Bank, 2000) Company’s financial statement is very important for the external users especially investors to make a decision and understand the business. Figures...
Words: 6667 - Pages: 27
...extend more credit to SMEs. Access to credit still remains a challenge to SMEs especially those in developing economies and continues to dominate discussions both within business circles and policy makers. In Nepal, for instance, a survey by Ferrari et al (2006) entitled to “Access to financial services in Nepal” indicated that lack of adequate access to credit topped factors hampering the growth of small businesses in Nepal. The general objective of this study is to explore the situation of access to finance of SMEs for their innovation and entrepreneurship. It also examines the firm specific attributes of access to bank credit in Nepal by focusing on SMEs in the Chitwan District. The study employed the quantitative approach to research in which the convenience sampling criteria was employed to select seventy-two small firms from the Bharatpur Municipality of Chitwan district. The major findings for the study indicated that there exist significantly, positive relations between certain attributes of a firm and access to credits. There are also, some firm specific attributes such as industry sector, size, collateral status etc and firm specific performances like sales, receivables turnovers, average collection period etc also impact heavily on SMEs access to credits and financing policies. Keywords; Access to Credit, SMEs, Credit Constraints, Credit Rationing 1.1 Background of the study Access to credit is important for the growth and development of Small and Medium-sized...
Words: 5548 - Pages: 23
...Relationship Between Exchange Rate and Stock Prices in India – An Empirical Analysis By Golaka C Nath* and G P Samanta** Abstract: The dynamic linkage between exchange rate and stock prices has been subjected to extensive research for over a decade and attracted considerable attention from researchers worldwide during the Asian crisis of 1997-98. The issue is also important from the viewpoint of recent large cross-boarder movement of funds. In India the issue is also gaining importance in the liberalization era. With this background, the present study examines the causal relationship between returns in stock market and forex market in India. Using daily data from March 1993 to December 2002, we found that causal link is generally absent though in recent years there has been strong causal influence from stock market return to forex market return. The results, however, are tentative and we need further in-depth research to identify the causes and consequences of the findings. January 2003 * Manager, NSEIL, Bandra-Complex, Bandra (East), Mumbai – 400 051 ** Assistant Adviser, RBI, DESACS, C-8, Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051 The views expressed in the paper are those of the authours’ and not necessarily of the organizations they belong to. 1 Introduction The Asian crisis of 1997-98 has made a strong pitch for dynamic linkage between stock prices and exchange rates. During the crisis period, the world has noticed that the emerging markets collapsed due...
Words: 4014 - Pages: 17
...financial position, it does not provide sufficient information about the cash flow effects of a firm’s operating, investing, and financing activities. The latter is the purpose of the statement of cash flows. 6.4 The statement of cash flows reports changes in the investing and financing activities of a firm. Significant changes in property, plant, and equipment affect the structure of assets on the balance sheet, for example, the age of the assets. Significant changes in long-term debt or capital stock affect the maturity structure of debt and the mix of debt versus shareholder financing. 6.5 The indirect method reconciles net income, the primary measure of a firm’s profitability, with cash flow from operations. Some argue that the relation between net income and cash flow from operations is less evident when a firm reports using the...
Words: 9074 - Pages: 37
