An Analysis of Working Capital Management and Firm Performance

This report examines the impact of working capital management on the financial performance of a company, specifically focusing on Rio Tinto. The research aims to analyze the effects of working capital on the company's performance, considering factors like cash management, inventory management, and receivables management. The report outlines the research questions, which explore the relationship between these aspects and the overall financial health of the company. Secondary data sources include Rio Tinto's annual reports and market data from ASX and Bloomberg. Key terms such as current ratio, cash conversion cycle, and return on assets are also identified. The report references three peer-reviewed scholarly articles to support its findings and provide a comprehensive understanding of working capital management's effect on firm profitability and value. The report investigates the impact of working capital management on firm performance, with special reference to Rio Tinto.

Running head: IMPACT OF WORKING CAPITAL MANAGEMENT ON THE
PERFORMANCE OF A COMPANY
Impact of Working Capital Management on the Performance of a Company: A Study on Rio
Tinto
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1
IMPACT OF WORKING CAPITAL MANAGEMENT ON THE PERFORMANCE OF A
COMPANY
Table of Contents
1. Field of research statement:.........................................................................................................2
2. Source of secondary data:............................................................................................................2
3. Research questions:.....................................................................................................................2
4. Search terms:...............................................................................................................................3
5. Three peer-reviewed scholarly articles:.......................................................................................3
References:......................................................................................................................................4

2
IMPACT OF WORKING CAPITAL MANAGEMENT ON THE PERFORMANCE OF A
COMPANY
1. Field of research statement:
The research will intend to analyse the effects of working capital on the performance of
an organisation with special reference to Rio Tinto, which is one of the leading mining
companies in Australia. A business organisation requires adequate resources for maintaining its
daily operations along with assuring that the resources are utilised maximally for improving its
profitability and overall performance. Many academic practitioners have identified significant
relationship between the performance of an organisation and working capital management. It has
been evaluated that few methods utilised by the managers in practice in undertaking inaccurate
capital decisions do not depend on the principles of finance; instead, they use poorly constructed
models or vague thumb rules. Such reported inadequacies among the financial managers are
practiced in the current era in numerous organisations as high bad debts and greater inventory
costs and these have negative impact on the operating performance. Therefore, the current
research will be investigating the impact of working capital management on firm performance,
with special reference to Rio Tinto.
2. Source of secondary data:
In order to accumulate secondary data for this research, the researcher will use the annual
reports of Rio Tinto published online for the past five years. The annual reports will be extracted
from the following website “https://www.riotinto.com/investors/results-and-reports-2146.aspx”.
In addition, the researcher will use the official website of ASX and Bloomberg for market-
related data of the Australian mining industry.
3. Research questions:
 How does cash management affect the financial performance of Rio Tinto?
 What role does inventory management play on the financial performance of Rio Tinto?
 What is the impact of receivables management on the performance of Rio Tinto?
 What is the relationship between working capital management and corporate performance
of Rio Tinto?

3
IMPACT OF WORKING CAPITAL MANAGEMENT ON THE PERFORMANCE OF A
COMPANY
4. Search terms:
The search terms to be used for the research include the following:
 Accounts payable period
 Accounts receivable period
 Current ratio
 Current assets
 Cash conversion cycle
 Inventory conversion period
 Financial leverage
 Net working capital management
 Return on assets
 Return on capital employed
5. Three peer-reviewed scholarly articles:
The three journal articles that will be selected for this research are included in the
reference list section. These articles will assist in finding out whether working capital
management enhances the value of an organisation. Moreover, the articles will shed light on the
effect of working capital management on firm profitability in different business cycles.

4
IMPACT OF WORKING CAPITAL MANAGEMENT ON THE PERFORMANCE OF A
COMPANY
References:
Aktas, N., Croci, E. and Petmezas, D. (2015). Is working capital management value-enhancing?
Evidence from firm performance and investments. Journal of Corporate Finance, 30, 98-
113.
Enqvist, J., Graham, M. & Nikkinen, J. (2014). The impact of working capital management on
firm profitability in different business cycles: Evidence from Finland. Research in
International Business and Finance, 32, 36-49.
Mwangi, L.W., Makau, M.S. & Kosimbei, G., 2014. Effects of working capital management on
performance of non-financial companies listed in NSE, Kenya. European journal of
business and management, 6(11), 195-205.