Theoretical Framework

The circular cash flow concept theory of working capital by San Gabriel (2011) is
based upon the operating capital cycle of a firm and the cash conversion cycle by
Gentry James and Hei wai Lee.
The operating cycle emphasizes cash conversion which then represents how
quickly a firm turns its products from paying for paying for inventory (payable) to
collecting cash from customers in payment for finished goods or services rendered.
Furthermore, cash conversion is considered as the length of time between
payment of cash for inventory, payment of debt obligation and receipt of cash from
collections. This conversion is also equal to inventory conversion period, plus the
collection period, minus the payable deferral period.
The concept is significant to this study entitled Effects of working capital
management on the profitability of small and medium enterprises in the First District of
Rizal, since it has been emphasized that working capital management can be
measured in terms of cycle including cash, accounts payable and inventor. Thus,
working capital management practices are greatly needed by Small and Medium
enterprise industries to run the operation accordingly and profitably.
Hypotheses
The researchers tested the following null hypotheses:
1. There is no significant difference on the perception of the respondents in the
Effects of Working Capital Management on the profitability of Small and

Medium enterprises in the First District of Rizal, based on their personal

profile.
2. There is no significant difference on the perception of the respondents in the
Effects of Working Capital Management on the profitability of Small and
Medium enterprises in the First District of Rizal, based on their business
profile.