Impact of Working Capital Management on Profitability of Manufacturing Firms

The study analyzes the impact of working capital management on profitability of manufacturing firms listed on ASX. It examines the challenges faced by companies and recommends strategies to overcome them.

ACC3005 The Accounting
Research Project

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Background.................................................................................................................................3
Aim and objective.......................................................................................................................3
Rationale.....................................................................................................................................4
LITERATURE REVIEW................................................................................................................4
RESEARCH METHODOLOGY.....................................................................................................5
TIMELINE.......................................................................................................................................6
REFERENCES................................................................................................................................8

Topic- To analyse the impact of working capital management on profitability of manufacturing
firms.
INTRODUCTION
Background
Working capital is being defined as the level of liquidity which company need to
maintain in order to meet its day- to- day expenses of the company. this is a financial metric
outlining the liquidity of company which need to be maintained for its effective operations. The
working capital management is being referred to as efforts of company in direction of managing
the current asset and current liabilities of business for smooth working. For the success of the
business it is very essential that working capital is managed in proper manner so that company is
in position to meet its daily expenses. The present study is based on several companies belonging
to manufacturing industry and are also listed on ASX that is Australian Securities Exchange. The
present research will undertake the use of financial statements analysis of these companies to
evaluate the impact of working capital over profitability of the companies.
Aim and objective
Aim- To critically evaluate the impact working capital management has over profitability of
company. A study on ASX listed manufacturing companies.
Objectives
 To articulate understanding relating to working capital management and its significance.
 To implement use of financial statements to outline the effective use of working capital
management for increasing profitability of ASX listed companies.
 To examine the challenges which companies face at time of managing working capital in
proper and effective manner.
 To recommend some of the strategies to overcome the challenges being faced by ASX
listed company.
Research question
1. What is the concept of working capital management along with its significance?
2. How the financial statements are being used to analyse whether working capital is
managed properly and what impact it has on profitability?

3. What are the various challenges which ASX companies face during the working capital
management?
4. What are some of the recommendation with help of which ASX company can improve its
working capital management and enhance profitability?
Rationale
For business to get successful it is very necessary that working capital is managed in
proper and effective manner. It is very essential for the companies to know that working capital
has a great impact over the profitability of the company. hence, this was the major reason behind
selection of working capital management as the research topic. In addition to this there was also
a personal and academic interest of researcher as well behind conducting the study.
LITERATURE REVIEW
As per the views of Dhole, Mishra and Pal (2019) working capital is necessary to be
maintained for the success of the company. this is particularly because of the reason that working
capital is the net difference between the current asset and current liabilities of the company. for
managing the liquidity and consistency within day to day working of company effective working
capital management is necessary.
On the other hand, Nobanee (2017) argued that working capital management has a direct
impact over profitability of the company. this is pertaining to the fact that when the working
capital will not be good then company will not be able to meet its daily expense. Thus, as a result
of this, profitability of the company will reduce because company is incapable to paying its day
to day expenses. As a result of this, company has to focus on managing and improving working
capital so that operation of business can be improved.
Further Adekola, Samy and Knight (2017) supported that with help of financial statement
analysis a company can easily evaluate that how well they are working in managing their
working capital. This is pertaining to the fact that working capital is calculated by subtracting its
current liabilities from current assets. Hence, this will provide a proper information and actual
figures for managing working capital. Along with this company can analyse that if they are
taking more time to convert their inventory into cash then this will not be good for the company.
thus, this will take time in order to manage and generate more cash for effective management of
day to day expenses.

On the contradictory note, Prasad and et.al., (2019) stated that major challenge which is
faced by companies in managing working capital is that many a times there is limited access to
the required information. Hence, this might affect the working capital management as necessary
information is not provided. Along with this, another challenge is the time constraint also affects
management of working capital. This is particularly because of the reason that many a times
some other issues are important and due to this, company is not able to focus on the effective
management of the working capital.
RESEARCH METHODOLOGY
Methods Description
Research method For completing the present research use of
quantitative method will be undertaken (Chu
and Ke, 2017). This is because of the reason
that it will provide more accurate and concrete
result.
Research approach The deductive approach will have used as it
involves formulating hypothesis relating to
research topic and then prove it with help of
data gathered.
Research philosophy In order to make the research successful, use of
positivism philosophy will be used. The reason
pertaining to the fact is that this philosophy is
based on factual information which provides
accurate results.
Data collection For the collection of data use of secondary
source will be undertaken as information
relating to financial statements of different
companies will be gathered from secondary
sources.
Sampling The sample which will be undertaken for the
successful completion of the research will be

10 companies listed of ASX.
Data analysis For analysing the data, use of SPSS will be
undertaken as the data will be analysed more
precisely with help of SPSS (Dźwigoł, 2019).
TIMELINE
Activity 1th
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2nd
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11th
Week
Selection of
research
topic
Conducting
LR
Research
methodology
Developing
questionnaire
Data
collection
Data analysis
Conclusion
and
recommendat
ion

Submitting
the final
report.

REFERENCES
Books and Journals
Adekola, A., Samy, M. and Knight, D., 2017. Efficient working capital management as the tool
for driving profitability and liquidity: a correlation analysis of Nigerian companies.
International Journal of Business and Globalisation. 18(2). pp.251-275.
Chu, H. and Ke, Q., 2017. Research methods: What's in the name?. Library & Information
Science Research. 39(4). pp.284-294.
Dhole, S., Mishra, S. and Pal, A. M., 2019. Efficient working capital management, financial
constraints and firm value: A text-based analysis. Pacific-Basin Finance Journal. 58.
p.101212.
Dźwigoł, H., 2019. Research methods and techniques in new management trends: research
results. Virtual Economics. 2(1). pp.31-48.
Nobanee, H., 2017. Efficiency of working capital management and profitability of UAE
construction companies: size and crisis effects. Available at SSRN 2971477.
Prasad, P., and et.al., 2019. Review of literature on working capital management and future
research agenda. Journal of Economic Surveys. 33(3). pp.827-861.