REVIEW OF LITERATURE For

WORKING CAPITAL ANALYSIS

S. NAME OF THE TITTLT OBJECTIVES RESEARC DIMENS FINDINGS conclusion
N AUTHOR OF THE H IONS
O PAPER/Y METHOD /VARIAB
EAR OF OLOGY LE s
THE
PAPER
1 Greg Filbeck, An The England- Working Firms are
Schweser Analysis importance of based capital able to
Study of efficient managem managem reduce
Program Working working ent ent financing
Thomas M. Capital capital consulting componen costs and
Krueger, Manage management firm t increase the
University of ment (WCM) is specializin definitions funds
Wisconsin-La Results indisputable. g in and available for
Crosse Across Working working average expansion by
Industrie capital is the capital values for minimizing
s difference issues for the entire the amount
@2005 between its global 1996 – of funds tied
resources in list of 2000 up in current
cash or readily clients. Across the assests.in
convertible The nearly addition
into cash original 1,000 discover that
(Current survey firms in these
Assets) and reports the measures for
organizational several survey, working
commitments working cash capital
for capital flow from change
which cash benchmar operations significantly
will soon be ks for , defined wtinin
required public as cash industries
(Current companie flow from across time.
Liabilities). s using operations
The data for divided by
objective of 1996. sales and
working Each referred
capital company to as
management is ranked “cash
is to maintain against its conversio
the optimum peers and n
balance of also efficiency”
each of the against (CCE),
working the averages
capital entire 9.0
components. field of percent.
1,000 IThe days
companie working
s. REL capital
continues
 to update (DWC),
the defined as
original the sum of
informati receivable
on on an s and
annual inventorie
basis s less
payables
divided
by daily
sales,
averages
51.8 days
and is very
similar to
the
days that
sales are
outstandin
g (50.6),
because
the
inventory
2 Pedro Juan Effects The corporate This In order Working
García‐Teruel, of finance methodol to capital The
Pedro working literature has ogy analyze managem research
Martínez‐ capital traditionally presents the ent is presented in
Solano, manage focused on important effects particularl this paper is
ment on the study of benefits. of y to provide
SME long-term These working important empirical
evidence on
profitabil financial include capital in the case
the effects
ity decisions. the fact manage of small
of working
@2007 Working that panel ment on and capital
capital data the medium- managemen
management methodol firm’s sized t on the
is important ogy profitab companies profitability
because of its assumes ility, the . Most of of a sample
effects on the that return these of small and
firm’s individual on companies medium‐
profitability s, firms, assets ’ assets sized
and risk, and states or (ROA) are in the Spanish
consequently countries was form of firms.
its value are used as current
(Smith, 1980). heteroge the assets.
Specifically, neous. depend Also,
working Time- ent current
capital series and variable liabilities
investment cross- . This are one of
 involves a section variable their main
tradeoff data was sources of
between studies defined external
profitability not as the finance. In
and risk. controllin ratio of this
g for this earnings context,
heteroge , before the
neity run interest objective
the risk of and tax, of the
obtaining to current
biased assets. research
results. With has been
Furtherm regards to provide
ore, panel to the empirical
data give indepen evidence
more dent about the
informati variable effects of
ve data, s, working
more working capital
variability capital managem
, less manage ent on the
collinearit ment profitabilit
y among was y of a
variables, measur sample of
more ed using small and
degrees the medium-
of number sized firms
freedom of days
and more account
efficiency s
receivab
le,
number
of days
of
inventor
y
and
number
of days
account
s
payable.
I
3 Carole The Working Responde irms which Working
Haworth∗ , focus of capital nts do the capital mgt
Paul West working management reported least routine of a
head capital routines of a the working large random
Nottingham manage large random frequency capital sample of
University ment in sample of of use of managem small
Business UK small small each of ent companies in
School, firms companies in the 11 appear, as the uk is
Jubilee @2003 the UK are specified anticipate examined.co
Campus, examined. working d, nsiderable
Wollaton Considerable capital to have variability in
Road, variability in managem less the take up
Nottingham the take-up of ent sophisticat of 11
NG8 1BB, UK 11 working routines.1 ed Working
Received 16 capital 7 Table 1 financial capital mgt
March 2001; management shows skills, routines are
accepted 3 routines was over two- higher detected.
March 2003 detected. thirds of profitabilit
Principal responde y, less
components nts interest in
analysis and reported growth,
cluster that they less
analysis used external
confirm the routines finance,
identification to review fewer
of four distinct payment credit
‘types’ of period to purchases,
companies creditors shorter
with regard to (75%), productio
patterns of customer n cycles,
working credit risk more
capital (71%), customers
management. cash paying on
budgeting time and
(70%), fewer cash
customer flow
credit problems.
periods
(70%),
doubtful
debts
(68%),
and
finance of
working
capital
(68%).
Less
frequentl
y used
routines
 related to
stock
levels
(64%),
bad debts
(61%),
stock
reorder
levels
(60%),
stock
turnover
(59%),
and
customer
discount
policy
(30%).
4 Nor Edi Azhar Working The paper is The it can be Thus it
Binti Capital made with an sample conclude highlights the
Mohamad Manage attempt to interval is that importance
Department ment: bridge the gap for five– there are of managing
of Finance & The in the year significant working
Economic, Effect of literature by period relations capital
University Market offering from between requirement
Tenaga Valuatio empirical 2003 to WCM with s to ensure
Nasional n evidence 2007. firm’s an
Sultan Haji and about Ratio performan improvemen
Ahmad Shah Profitabil working analysis ce as t in firm’s
Campus, ity in capital was findings market
26700 Malaysia management chosen as suggested value and
profitability
Muadzam @2010 and its effect a that,
and this
Shah, Pahang, to the performa working
aspect must
Malaysia performance nce capital
form part of
Tel: 60-9-455- of Malaysian measure componen the
2020-3324 E- listed ment and ts and company's
mail: companies indicators performan strategic
NorEdi@unite from the since this ce in and
n.edu.my perspective of analysis Malaysia operational
Noriza Binti market provides disclose thinking in
Mohd Saad valuation and methods both order to
Department profitability. T for positive operate
of Finance & assessing and effectively
Economic, the negative and
University financial associatio efficiently.
Tenaga strengths n
Nasional and
weakness
 Sultan Haji es of the
Ahmad Shah firms
Campus, performa
26700 nce using
Muadzam informati
Shah, Pahang, on found
Malaysia in its
Tel: 60-9-455- financial
2020-3336 E- statemen
mail: noriza@ ts.
uniten.edu.m
y
5 Bhaskar Influenc Working The The The paper
Bagchi, e of capital principal necessity aims to
Department Working management endeavor of firms’ explore the
of Commerce, Capital is considered of this working effects of
Alipurduar Manage to be a vital paper is capital components
College, Dist. ment on issue in to explore alters over of working
Jalpaiguri, Pin Profitabil financial the time like capital
managemen
736122, ity: A management impact of its internal
t like cash
West Bengal, Study on decision and it working cash
conversion
India. Tel: 91- Indian affects both capital generatio cycle
947-707-3143 FMCG liquidity and managem n rate and (CCC), age
Compani profitability of ent on thus of inventory
es the firm. The corporate FMCG (AI), age of
@2012 secondary profitabili firms debtors
data for ty of should (AD), age of
analysis is Indian sustain a creditors
retrieved from FMCG good (AC), debt
Prowess firms. To harmoniza to total
Database of achieve tion of its assets
CMIE for ten this, we assets and (DTA) and
year period have liabilities. debt equity
from 2000-01 develope The ratio (DER)
to 2009-10. d an findings of on
profitability
Apart from empirical our study
of FMCG
using framewor results
firms.The
Pearson’s k which under
results of
correlation was first fixed our study
analysis, panel used by effect also indicate
data Shin and estimation the better
regression Soenen s explanatory
analysis like (1998), demonstr power of
pooled OLS Deloof ate that fixed effect
model and (2003) DTAit, LSDV
fixed and ADit, ACit, model than
effect LSDV subseque and AIit that of
model are ntly by are
 employed in Padachi negatively pooled OLS
the study. (2006) associated m odel
and with firm’s
Mathuva profitabilit
(2009). y as
quantified
by ROTAit
6 Jane M. Cote The This teaching Over a This
and Claire Merchan note has two prolonged teaching
Kamm Latham dising objectives. period, note has
Ratio: First, it lengthenin two
A explores the g the cash objectives.
Compreh limitations of conversio First, it
ensive the traditional n cycle explores the
Measure measures of cannot be limitations of
the
of working sustained
traditional
Working capital without a
measures of
Capital management negative working
Strategy presented in impact on capital
@1999 the financial profitabilit managemen
ratio analysis y, as t presented
component of exemplifie in the
a typical d by WT financial
accounting Grant. ratio
curriculum. The analysis
Merchandi component
sing Ratio of a typical
helps accounting
students curriculum.
see the Second, it
interrelati presents an
additional or
onship
alternative
among
measure
many based on
financial early work in
variables the finance
literature
7 Bana Working In this study, Firms For a Using
Abuzayed capital two listed on number robust The paper
Talal Abu- manage performance the stock of firms estimation includes a
Ghazaleh ment measures are market in the technique conceptual
College of and used: one are sample, s this as well as
Business, The firms’ accounting required financial study empirical
German perform and one to assets, found that analysis, in
which data
Jordanian ance in market present which profitabilit
from a
University, emergin measure, profits, if are y is
sample of
g believing that those mainly affected listed firms
Amman, markets: wealth exist, in shares positively for the
Jordan the case maximization order to in with the period from
of is make other cash 2000 to
Jordan shareholders’ their firms, conversio 2008 are
@2012 main concern. shares are a n cycle. analyzed to
To bring up more significa This examine if
more robust attractive. nt part indicates more
efficient
results, this Contrary of total that more
working
study used to assets. profitable
capital
more than one listed That is firms are
managemen
estimation firms, also the less t improves
technique, non-listed reason motivated firms’
including firms why to manage accounting
panel data have less return their profitability
analysis of an on working and firms’
incentive assets is capital. In value. Cash
to not addition, conversion
present consider financial cycles as
true ed as a markets well as its
operation measur failed to components
al e of penalize are used as
results profitab managers measures of
and ility. for working
usually When a inefficient capital
managemen
their firm has working
t skills
financial mainly capital
statemen financial managem
ts do not assets ent in
reflect on its emerging
real balance markets
operation sheet,
al and its
financial operatin
activity. g
Additional activitie
ly, as s will
argued by contribu
Lazaridis te little
and to the
Tryfonidis overall
(2006), return
hiding on
profits in assets
order to
avoid
corporate
tax is a
common
 tactic for
non-listed
firms in
emerging
markets
which
makes
them less
of a
suitable
sample
for
analysis
where
one can
draw
inference,
based on
financial
data, for
working
capital
practices.
8 Padachi DK1 Focus on The objectives The The The The paper
* and Carole working are to study survey hypothe findings includes a
Howorth2 capital the current instrumen sized (results conceptual
1School of manage practices of t contains relation not as well as
Accounting, ment WCM of essentiall ship reported) empirical
Finance and practices Mauritian y closed- betwee are in line analysis, in
Accounting, among SMEs ended n age of with the which data
from a
University of Mauritia and to questions business firms’
sample of
Technology, n SMEs: examine the focusing and stage
listed firms
Mauritius La Survey extent to on WCM developm
for the
Tour Koenig evidence which firms’ enterpris practice ent model period from
Pointe aux and and owner- e and s is where 2000 to
Sables empirical manager owner- confirm more 2008 are
2School of analysis characteristics manager ed to matured analyzed to
Management, @2014 influence the characteri some firms are examine if
Bradford adoption of stics and extent. expected more
University, WCM their The six to have efficient
United routines. approach sub- formalised working
Kingdom to WCM samples systems capital
Accepted 5 practices. age and managemen
May, 2014 A total of categor procedure t improves
145 y K-W s in place firms’
survey tests accounting
forms reveale profitability
and firms’
were da
 collected significa value. Cash
out of a nt conversion
sample of differen cycles as
420 firms, ce in well as its
represent the area components
ing 20% of are used as
of the debtors’ measures of
working
populatio manage
capital
n, which ment
managemen
satisfies and
t skills
the financin
sampling g of
criteria working
(firms capital.
employin
g up to 50
employee
s). A
stratified
sampling
was used
so that
each
industry
group is
represent
ed. Four
questionn
aires had
to be
excluded
as they
were not
properly
filled in
and many
sections
were left
unanswer
ed.

9 Iffet Görkey The Objective of In order According

Kesimli1 impact this study is to to to This study
, Suleyman of the reveal the understan Kolmogor found
Gokhan global impact of the d the ov- evidence
Gunay2 economi recent global impact of Smirnov that the
Luleburgaz c crisis economic the GEC Test, data recent crisis
Vocational on on the have been affected the
School, working crisis, working normally ISE traded
Kirklareli capital of triggered in capital distribute companies
University, real 2007 and compone d for all on a
Turkey sector in unveiled in nts, the
2Faculty of Turkey 2008, on the thirteen periods limited
Economics @januar working ratios and for all basis.
and y 2011 capital of real specificall the ratios. Therefore,
future
Administrativ sector in y related Based on
research
e Sciences, Turkey. Since to paired
and study is
Trakya it is obvious working samples t- recommend
University, that capital test and ed. First, the
Turkey ratios would have Mann year 2009 is
e-mails: help in such been Whitney to be
ifkesimli@gm an analysis, used in u-test, completed.
ail.com; s we have this thirteen Another set
analyzed the analysis. hypothese of research
current assets The s that are should
and liabilities list of formed for follow
related these the ratios including
ratios, based ratios is related post-crisis
on financial as with the era at the
statements of follows: working moment we
Turkish real 1. Current capital of decide this
crisis is
sector firms, Ratio (CR) real
over.s
quoted in the 2. sector are
Istanbul Stock Liquidity tested and
Exchange Ratio (LR) the
(ISE). 3. Cash findings
Ratio for each
(CAR) ratio
4.
Inventory
-to-
Current
Assets
Ratio
(ICAR)
5. Short
Term
Receivabl
es-to-
Current
Assets
Ratio
(STRCAR)
6. Current
Assets-to-
Total
 Assets
Ratio
(CATAR)

10 Godfred Net Most of the The The paper

Adjapong Working documented sample provides results also
Afrifa1 Capital, empirical for the empirical hold when
Canterbury Cash evidence of study is evidence the QRATIO
Christ Church Flow and net working drawn and is used as a
Business Perform capital (NWC) from assessmen measure of
market-
School ance of focuses on the SMEs in t of the
based
Canterbury UK relevance of the UK for relationshi
Christ Church @2016 working the p between performanc
University capital period NWC and e for quoted
North Holmes management from performan SMEs in the
Road (WCM) to firm 2004 to ce by sample,
Canterbury, performance 2013. taking which
UK (Deloof, 2003; Financial cash flow indicate that
Faulkender firms such into quoted firms
and Wang, as banks considerat can improve
2006; Fazzari and ion. The their
and Petersen, insurance study is shareholder
1993). were based on s' value by
However, the excluded an observing
effect of cash because unbalance the optimal
flow on the they have d panel level of
working
relationship different data of
capital
between accountin 6,926
investment
WCM and firm g SMEs in at which
performance requirem the UK performanc
is scant. This ents (see, over a e is
paper Deloof, ten-year improved
examines the 2003; period and taking
cash flow Hill et al., (2004- into
implications of 2010). 2013). The consideratio
the effect of Moreover results n cash flow.
NWC on , firm- show that The results
performance years NWC garnered
of Small and with relationshi from.
Medium anomalies p to
Enterprises in their performan
(SMEs) in the accounts ce is
United such as concave,
Kingdom (UK). negative however,
WCM is values in after
important to assets, taking into
firms because sales, considerat
it involves a current ion the
trade-off assets, interactio
between risk fixed n
and assets effects of
performance were the
(Deloof, 2003; omitted availability
Smith, 1980). (see, Hill of cash
et al., flow the
2010). relationshi
Also, p becomes
firms convex.
missing This
substanti indicates
al amount the
of importanc
informati e of cash
on were flow to
excluded. firms’
Finally, all WCM
variables policies.
were The
winsorize results
d at 1% highlight
(see, the fact
Garcia- that in the
Teruel event of
and cash flow
Martinez- unavailabil
Solano, ity firms
2007; Hill should
et al., strive to
2010). reduce the
The final investmen
sample of t in
SMEs, working
which is capital.
based on
the
requirem
ents
establishe
d by the
European
Commissi
on’s
recomme
ndation
2003/361
/CE of 6rd
 May,
2003, on
the
definition
of SMEs,
therefore
consists
of an
unbalanc
ed
panel of
6,926
firms for
which
informati
on is
available.

11 Geofrey T. THE The purpose The Finally, it

Mills IMPACT of this paper is above would to the
OF to continue analysis appear above, one
INFLATIO the discussion has that would
N ON of the significant corporate expect that
CAPITAL role of implicatio financial the degree
of leverage
BUDGETI inflation in ns for behavior
employed
NG AND capital corporati is
by firms
WORKIN budgeting, ons, and influenced
increases
G and to focus these by during
CAPITAL on the implicatio inflation. inflationary
@1996 individual ns go Inflation
components beyond will cause periods.
of the process the the firm to Moreover, to
to draw capital reduce its the extent
specific budgeting capital that this is
conclusions decision. budget, to “unplanned”
with respect Certainly attempt to debt, it is
to the the reduce net more likely a
interaction capital working firm would
between the budgeting capital, finance this
cost of capital, decision and to debt from
shortterm
inflation, and itself is alter the
rather than
the cash flow significant debt/asset
long term
variables ly ratio using borrowings.
within a DCF affected short term As the
- IRR by the debt, inflation
framework. existence eased, the
of firm would
find it much
 inflation easier to
and return to a
higher morenormal
inflationa capital
ry structure by
expectati replacing
ons, and short term
debt with
of critical
retained
importan
earnings
ce is that
the
capital
budgeting
decision
is not
neutral
even if
prices of
output
are
expected
to rise at
the same
rate as
costs and
the cost
of capital.
12 Sayeda Relations Cash As a The Correlatio
Tahmina hip conversion methodol indepen n is used This study is
Quayyum between cycle basically ogy to dent to figure an attempt
School of Working shows how study the variable out the to
Business, Capital long it takes a relationsh s nature of investigate if
United Manage firm to ip included relationshi there is any
International ment convert between are only p between relationship
between
University and resource working related variables.
working
UIU Bhaban, Profitabil inputs into capital to Table 1 of
capital
House – 80, ity cash managem liquidity Appendix- managemen
Road – 8A in flows. This ent and A contains t and
Dhanmondi, Context consists of efficiency working the profitability
Dhaka – 1209, of three parts, and capital correlatio of
Bangladesh Manufac receivables profitabili even n matrix manufacturi
Tel: 880-28- turing collection ty, though for the ng
152-218 E- Industrie period, regressio other variables corporations
mail: s in payables n analysis factors of cement . For this
stq9999@gm Banglade deferral has been are industry. purpose
ail.com sh period and used. For believed We can Corporation
@2012 inventory the to be see that s enlisted
turnover purpose influenti the return with the
 period. The of al on asset Dhaka
theoretical simplicity enough and net Stock
importance of and for the profit Exchange
the working identifyin profitab margin are has been
capital g each ility both selected
component variables of the negatively and the
over the influence firms. correlated analysis
covers a
profitability separatel Future with the
time period
ratio is very y, single researc cash
from year
clear, that regressio h is conversio
2005 to
is, the lesser n has necessa n cycle. 2009
the time a been ry to These
firm needs to chosen. determi results are
realize cash The ne consistent
from its regressio other with the
customers n analysis potentia view
relative to the considere l that the
time it d influenc shorter
requires to Profitabili ing the period
pay off its ty ratios factors between
as as productio
dependen indepen n and sale
t variable dent of
and variable products
various s the larger
working is the
capital firm’s
ratios and profitabilit
liquidity y,
ratios as Lazaridis
independ and
ent Tryfonidis
variables. (2006).
Here,
cash
conversio
n cycle is
used to
measure
the
performa
nce of
working
capital
analysis.

13 ShaistaWasiuz Determi The objective Data are Working This study

zaman nants of of this study is collected capital contribute
Multimedia Working to determine from investm s to the
University, Capital the factors three ent, scarce but The study
Malaysia, Investme influencing a databases pecking growing finds that in
shaista@mmu nt: A firm’s ; the order literature times of
.edu.my Study of decision with Datastrea theory, on the economic
VeeriChettiar Malaysia regards to the m asymme determina expansion,
Arumugam n size of its Internatio tric nts of younger and
smaller
Multimedia PublicLis investment in nal informa working
firms with
University, ted net operating Database, tion, capital
less tangible
Malaysia Firms working ISI board managem assets, low
@2013 capital. An Emerging charact ent, an leverage,
investigation Markets eristics area that high
into the Database has not immediate
factors and been sales
affecting net Research given the growth, high
investment in Insight attention operating
working Database it needs. cash flows,
capital should provided The less volatile
integrate the by results revenues
individual Compusta would be and low
components t, in order helpful to levels of
(Hill, Kelly to obtain investors asymmetric
&Highfield maximum in information
are likely to
2010) number evaluating
have the
of firms the
highest
for the working investments
analysis. capital in
The strategy of operating …
annual firms as it
reports of may be
the able to
companie give some
s are also indication
referred about the
to for financial
informati wellbeing
on on the of the
board firm. It is
characteri found that
stics of different
the firms. firm
GDP data characteri
are stics make
obtained it
necessary
for firms
to have
different
 working
capital
policies
which are
much
more
suited to
their
situation.

14 Sonia BAÑOS- FINANCI Since Smith To In Having As financing

CABALLERO1, NG OF (1980) analyse contrast found that options and
Pedro J. WORKIN suggested that the , when there is a methods vary
GARCÍA- G working relation firms concave between
TERUEL2, CAPITAL capital between finance relation small and
Pedro REQUIRE management WCR a high between large firms
MARTÍNEZ- MENT, is important financing percent the due to their
SOLANO3 FINANCI because of and firm age of variable differences in
Department AL its effects on performa their for WCF ownership
of FLEXIBILI the nce, we WCR and firm structure
Management TY AND profitability, use the with performan ,flexbilty and
and Finance, SME risk, and, vari- short- ce for the taxes it is
PERFOR consequently, able WCF term period suggested
MANCE value of a as a bank 1997 to that further
@March firm, the measure debt, 2007 and research
2014 literature on of WCR riskier that the focused on
investment in financing. WCR breakpoin quoted
working This is financin t of this companies or
capital calculated g relation different
requirement using the negativ depends financial
(WCR) has following ely on firm systems be
enjoyed ratio: affects financial conducted.
extensive short- firm flexibility,
growth. term perform this
bank ance section
debt/WC because examines
R where the whether
WCR is negativ these
defined e results
as current influenc also ,hold
assets e of during
minus short- the
accounts term financial
payable. bank crisis
A greater debt
WCF outweig
means hs the
riskier positive
 WCR influenc
financing, e.
as it
measures
the
percentag
e
of WCR
that is
financed
with
short-
term
bank debt

15 Robert Alan Working Calculate the Unfortun It is As a On

Hill Capital working ately, importa result, thecontrater
Manage capital only nt to recommen y they shold
ment operating internal realise dations be viewed
@2013 cycle and managem that for asa
financing cycle ent has corpora improved potentially
from access to te cash methods powerful
published this flows of component
accounting qualitativ are controlling of affirms
data and e ultimate investmen marketing
analyse the informati ly the t in strategy
inter- on, product debtors which, when
relationships leaving of sales invariably skillfully
between the external resultin underline utilized can
two, users of g in the directly
- Define the accounts cash amount of influence
dynamics of a with a received credit to demand
company’s quantitati , or a be determines a
credit-related ve claim to granted working
funds system, analysis cash and capital
- Appreciate of the from standard requirment
the disparities financial debtors. collection amd
between the data that Hence, procedure matreialityen
theory and the the s but treat hance future
practice of company maximis the terms profitability .
working chooses ation of of
capital to net cash sale as
management, provide. inflows given.
given our may be
normative achieve
wealth d
maximisationa by
ssumption raising
We shall begin the
by explaining level of
the sales
relationship but not
between necessa
working rily
capital reducin
management g the
and financial level of
strategy debtors.