Impact of aggressive working capital management policy on firm’s

profitability

The corporate finance literature has traditionally focused on the study of long term

financial decisions, particularly investment, capital structure dividend or company valuation

decisions. Working capital management is a simple and straight forward concept of ensuring

the ability of the organization to fund the difference between the short term assets and short

term liabilities.

A firm may adopt on aggressive working capital management policy with a low level of

current assets as a percentage of total assets, or it may also be used for the financing decisions

of the firm in the form of high level of current liabilities. Excessive levels of current assets may

have a negative effects on the firm’s profitability, where as a low level of current assets may

lead to a lower level of liquidity and stock outs, resulting in difficulties in maintaining smooth

operations.

Variable used in the study

 Aggressive Investment Policy

AIP= Total Current Assets/Total Assets

 Affressive Financing Policy

AFP= Total Current Liabilities/Total Assets

 Return On Asset

 ROA= Net Earnings After Taxes/Book Value of Assets

 Tobin’s Q=Market Value Of Firm/Book Value Of Assets

To investigates the relationship between the aggressive working capital assets

management and financing policies and its impact on profitability of firm dividend. The

impact of aggressive working capital investment and the financing policies has been

examined using panel data regression models between working capital policies and

profitability.