Page 227 International Journal of Accounting & Business Management www.ftms.edu.my/journals/index.php/journals/ijabm Vol. 4 (No.2), November, 2016 ISSN: 2289-4519 DOI: 10.24924/ijabm/2016.11/v4.iss2/227.241 This work is licensed under a Creative Commons Attribution 4.0 International License. Research Paper Impact of working capital management on firm's profitability Sherry Bulin School of Accounting and Business Management FTMS College, Malaysia [email protected]Abdul Basit School of Accounting and Business Management FTMS College, Malaysia [email protected]Sahibzada Muhammad Hamza School of Accounting and Business Management FTMS College, Malaysia [email protected]ABSTRACT This research seeks to establish the impact of Working Capital Management (WCM) towards the profitability of Malaysia’s consumer product firms. This research was done on 50 companies registered in Bursa Malaysia, which covered the period of 2011 – 2015 with a total observation of 250 firms/years. The dependent variable to measure the profitability is Return on Asset (ROA). The independent variable used in this research is Inventory Turnover Ratio (ITR), Cash Conversion Cycle (CCC), Collection Period (CP) and Working Capital Turnover Ratio (WCTR). Also, this study adopted explanatory research design. Moreover, convenience sampling technique is used to select companies. The collected data was analyzed using descriptive means, Pearson correlation and multiple linear regressions via E-Views. Regression analysis was used in this research to examine the effect of working capital management on the profitability of the firms. Thus, the findings show insignificant relationship between Inventory Turnover Ratio (ITR), Working Capital Turnover Ratio (WCTR) and Collection Period (CP) on Return on Asset (ROA). However, the only significant relationship was found between Cash Conversion Cycle (CCC) and Return on Asset (ROA). While this study are inserted only as 50 companies, for future researches should include a larger sample of organizations and sectors that might reconsider a better result
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International Journal of Accounting & Business Management
The table above shows that cash conversion cycle variable is only significant with return on asset
with a value of 0.007. However, inventory turnover ratio, working capital turnover ratio and
collection period is not significant with a value of 0.05. Based on the above result cash conversion
cycle have a influential impact on return on assets as inventory turnover ratio, working capital
turnover ratio and collection period does not place any significant impact on return on assets.
The highest beta (β) coefficient value is for inventory turnover ratio of 0.028 with an insignificant
value of 0.726. Followed by cash conversion cycle beta (β) coefficient value 0.003 with a
significant value of 0.007, working capital turnover ratio beta (β) coefficient value is 0.001 with
insignificant P-value of 0.579. Lastly, collection period beta (β) coefficient value is 0.015 with P-
value of 0.252.
HYPOTHESIS SIGNIFICANT
LEVEL RESULT EFFECT
H1 : There is a positive significant impact of Inventory Turnover Ratio on Return on Asset.
0.726 Rejected The P-value is 0.726 which is more than 0.05. This shows that Inventory Turnover Ratio is not significant impact on Return on Asset.
H2 : There is a positive significant impact of Cash Conversion Cycle on Return on Asset
0.007 Accepted The P-value is 0.007 which is less than 0.05 significant levels. This shows that Cash Conversion Cycle is significant impact on Return on Asset.
H3 : There is a positive significant impact of Collection Period on Return on Asset.
0.579 Rejected The P-value is 0.579 which is more than 0.05. This shows that Collection Period is not significant impact on Return on Asset.
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Table 5: Summary of Hypothesi
5.0. Conclusion and Recommendation
The result concluded that inventory turnover ratio, collection period and working capital
turnover ratio does not place a significant impact on firm profitability which shows that quick
dispatched of inventory stock does not places influence impact on the profitability of the sample
consumer product companies registered in Bursa Malaysia. While flipping the other side of coin,
The cash conversion cycle has significant positive impact on return on asset, which indicates that
the quick conversion of cash places a significant influential impact on the profitability of the
consumer product company registered in Bursa Malaysia.
Recommendations
The further researchers are recommended to make an inquiry with a broader approach through
addressing other sectors and different countries to check the similarity in the results found.
Further, a more diverse framework could be engaged which includes other working capital and
profitability measures to portray a more visible picture. Lastly, a comparative study can also be
made to check the different of working capital management on profitability based on industry
natures.
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H4 : There is a positive significant impact of Working Capital Turnover Ratio on Return on Asset.
0.252 Rejected The P-value is 0.252 which is more than 0.05. This shows that Working Capital Turnover Ratio is not significant impact on Return on Asset.
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