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THE EFFECT OF WORKING CAPITAL MANAGEMENT ON FINANCIAL PERFORMANCE AND OPERATIONAL CASH FLOWS OF COMPANIES ACCEPTED IN TEHRAN SECURITIES EXCHANGE
Corresponding Author(s) : Ali Asghar Sameni
Humanities & Social Sciences Reviews,
Vol. 7 No. 6 (2019): November
Abstract
Purposes: Working capital management can have a huge impact on financial performance and operational cash flows. In this research, the effect of working capital management components on financial performance and operating cash flows have been investigated.
Methodology: The data used in this study are financial statements of companies listed in Tehran securities exchange for the period 2007 to 2011.
Results: The difference between sales and operating profit as a benchmark for measuring performance and the difference between operating cash flow and operating profit as a measure of operating cash flow has been used. Regression results show that there is no meaningful relationship between the components of working capital management with financial performance and operating cash flow.
Implications/Applications: Net income represents the change in a business's financial circumstances incurred through that business choosing to run its revenue-producing operations for one specific time period. Because the business cannot choose to run its revenue-producing operations without incurring expenses while doing so, net income is equal to revenues minus expenses. Expenses are often divided up into additional categories for ease of comprehension. Revenues minus cost of sales is equal to gross profit; gross profit minus operating expenses is equal to operating profit.
Novelty/Originality: The novelty of this study is a balance between current assets and current liabilities, as well as maintaining a balance between profitability and liquidity which can serve a great purpose in the economy.
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- Aktas, N., Croci, E., & Petmezas, D. (2015). Is working capital management value-enhancing? Evidence from firm performance and investments. Journal of Corporate Finance, 30, 98-113. https://doi.org/10.1016/j.jcorpfin.2014.12.008 DOI: https://doi.org/10.1016/j.jcorpfin.2014.12.008
- Baños-Caballero, S., GarcÃa-Teruel, P. J., & MartÃnez-Solano, P. (2013). The speed of adjustment in working capital requirement. The European Journal of Finance, 19(10), 978-992. https://doi.org/10.1080/1351847X.2012.691889 DOI: https://doi.org/10.1080/1351847X.2012.691889
- Baños-Caballero, S., GarcÃa-Teruel, P. J., & MartÃnez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332-338. https://doi.org/10.1016/j.jbusres.2013.01.016 DOI: https://doi.org/10.1016/j.jbusres.2013.01.016
- Ben-Nasr, H. (2016). State and foreign ownership and the value of working capital management. Journal of Corporate Finance, 41, 217-240. https://doi.org/10.1016/j.jcorpfin.2016.09.002 DOI: https://doi.org/10.1016/j.jcorpfin.2016.09.002
- Deloof, M. (2003). Does working capital management affect profitability of Belgian firms?. Journal of business finance & Accounting, 30(3â€4), 573-588. https://doi.org/10.1111/1468-5957.00008 DOI: https://doi.org/10.1111/1468-5957.00008
- Dou Lou, M., & Mahmoudi, M. (2016). working capital, company performance and financing constraints. Journal of Financial Accounting Knowledge, 4(11), 130-107.
- Gitman LJ (2011) Principle of managerial finance (13th ed). New Jersey: Prentice Hall.
- Hill, M. D., Kelly, G. W., & Highfield, M. J. (2010). Net operating working capital behavior: a first look. Financial management, 39(2), 783-805. https://doi.org/10.1111/j.1755-053X.2010.01092.x DOI: https://doi.org/10.1111/j.1755-053X.2010.01092.x
- Isadinia, N., & Takai, A. (2010). Investigating the Impact of Working Capital Management on the Profitability of Companies Affiliated in Exchange of Tehran Securities. Journal of Financial Accounting, 2(5), 120-139.
- Kieschnick, R., Laplante, M., & Moussawi, R. (2013). Working capital management and shareholders’ wealth. Review of Finance, 17(5), 1827-1852. https://doi.org/10.1093/rof/rfs043 DOI: https://doi.org/10.1093/rof/rfs043
- Mashayekh, S., Nowroozi, S., & Ghashgaee, F. (2016). The effect of the held cash holdings on the relationship between returns and working capital. Accounting and auditing reviews. Faculty of Management, University of Tehran, 1, 54-39.
- Noreen, U., Khan, S. K., & Abbas, Q. (2009). International working capital practices in Pakistan. International Research Journal of Finance and Economics, 32(32), 160-170.
- Pass, C., & Pike, R. (1987). Management of working capital: A neglected subject. Management Decision, 25(1), 18-24. https://doi.org/10.1108/eb001430 DOI: https://doi.org/10.1108/eb001430
- Sarraf, F., & Salehi, M. (2015). Managing Cash Flow and Financial Performance of Accepted Companies in Exchange of Tehran Securities. Economics and Business Research Report, 8, 53-68.
- Sobhi, H. R., Azadikhah, E., Behbahani, M., Esrafili, A., & Ghambarian, M. (2018). Application of a surfactant-assisted dispersive liquid-liquid microextraction method along with central composite design for micro-volume based spectrophotometric determination of low level of Cr (VI) ions in aquatic samples. Spectrochimica Acta Part A: Molecular and Biomolecular Spectroscopy, 202, 36-40. https://doi.org/10.1016/j.saa.2018.05.031 DOI: https://doi.org/10.1016/j.saa.2018.05.031
- Yaghoub Nejad, A., Vakili Fard, H., & Babaei, A. R. (2010). The Relationship between Working Capital Management and Profitability in Companies Accepted in Exchange of Tehran Securities. Journal of Financial Engineering and Portfolio Management, 2, 137-117.
- Zainali, M., & Dadashzadeh, G. (2016). Effect of Capital Management Strategy on Economic Performance with Emphasis on Managing Capital Productivity in Companies Accepted in Exchange of Tehran Securities. Productivity Management, 38(38), 208-181.
- Maradi, M., Salehi, M., & Arianpoor, A. (2012). A comparison of working capital management of chemical and medicine listed companies in Tehran Stock Exchange. International Journal of Business and Behavioral Science, 2(5), 62-78.
- Jabbari, H., Sadeghi, Z., & Askari, S. A. (2013). Cash flow, earning opacity and its impact on stock price crash risk in Tehran stock exchange. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(4), 138-145.
- Balouei, E., Anvary Rostamy, A. A., Sadeghi Sharif, S. J., & Saeedi, A. (2018). The impacts of financial structure on financial performance of banks listed in Tehran Stock Exchange: An empirical application. Advances in Mathematical Finance and Applications, 3(3), 11-26.
References
Aktas, N., Croci, E., & Petmezas, D. (2015). Is working capital management value-enhancing? Evidence from firm performance and investments. Journal of Corporate Finance, 30, 98-113. https://doi.org/10.1016/j.jcorpfin.2014.12.008 DOI: https://doi.org/10.1016/j.jcorpfin.2014.12.008
Baños-Caballero, S., GarcÃa-Teruel, P. J., & MartÃnez-Solano, P. (2013). The speed of adjustment in working capital requirement. The European Journal of Finance, 19(10), 978-992. https://doi.org/10.1080/1351847X.2012.691889 DOI: https://doi.org/10.1080/1351847X.2012.691889
Baños-Caballero, S., GarcÃa-Teruel, P. J., & MartÃnez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332-338. https://doi.org/10.1016/j.jbusres.2013.01.016 DOI: https://doi.org/10.1016/j.jbusres.2013.01.016
Ben-Nasr, H. (2016). State and foreign ownership and the value of working capital management. Journal of Corporate Finance, 41, 217-240. https://doi.org/10.1016/j.jcorpfin.2016.09.002 DOI: https://doi.org/10.1016/j.jcorpfin.2016.09.002
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms?. Journal of business finance & Accounting, 30(3â€4), 573-588. https://doi.org/10.1111/1468-5957.00008 DOI: https://doi.org/10.1111/1468-5957.00008
Dou Lou, M., & Mahmoudi, M. (2016). working capital, company performance and financing constraints. Journal of Financial Accounting Knowledge, 4(11), 130-107.
Gitman LJ (2011) Principle of managerial finance (13th ed). New Jersey: Prentice Hall.
Hill, M. D., Kelly, G. W., & Highfield, M. J. (2010). Net operating working capital behavior: a first look. Financial management, 39(2), 783-805. https://doi.org/10.1111/j.1755-053X.2010.01092.x DOI: https://doi.org/10.1111/j.1755-053X.2010.01092.x
Isadinia, N., & Takai, A. (2010). Investigating the Impact of Working Capital Management on the Profitability of Companies Affiliated in Exchange of Tehran Securities. Journal of Financial Accounting, 2(5), 120-139.
Kieschnick, R., Laplante, M., & Moussawi, R. (2013). Working capital management and shareholders’ wealth. Review of Finance, 17(5), 1827-1852. https://doi.org/10.1093/rof/rfs043 DOI: https://doi.org/10.1093/rof/rfs043
Mashayekh, S., Nowroozi, S., & Ghashgaee, F. (2016). The effect of the held cash holdings on the relationship between returns and working capital. Accounting and auditing reviews. Faculty of Management, University of Tehran, 1, 54-39.
Noreen, U., Khan, S. K., & Abbas, Q. (2009). International working capital practices in Pakistan. International Research Journal of Finance and Economics, 32(32), 160-170.
Pass, C., & Pike, R. (1987). Management of working capital: A neglected subject. Management Decision, 25(1), 18-24. https://doi.org/10.1108/eb001430 DOI: https://doi.org/10.1108/eb001430
Sarraf, F., & Salehi, M. (2015). Managing Cash Flow and Financial Performance of Accepted Companies in Exchange of Tehran Securities. Economics and Business Research Report, 8, 53-68.
Sobhi, H. R., Azadikhah, E., Behbahani, M., Esrafili, A., & Ghambarian, M. (2018). Application of a surfactant-assisted dispersive liquid-liquid microextraction method along with central composite design for micro-volume based spectrophotometric determination of low level of Cr (VI) ions in aquatic samples. Spectrochimica Acta Part A: Molecular and Biomolecular Spectroscopy, 202, 36-40. https://doi.org/10.1016/j.saa.2018.05.031 DOI: https://doi.org/10.1016/j.saa.2018.05.031
Yaghoub Nejad, A., Vakili Fard, H., & Babaei, A. R. (2010). The Relationship between Working Capital Management and Profitability in Companies Accepted in Exchange of Tehran Securities. Journal of Financial Engineering and Portfolio Management, 2, 137-117.
Zainali, M., & Dadashzadeh, G. (2016). Effect of Capital Management Strategy on Economic Performance with Emphasis on Managing Capital Productivity in Companies Accepted in Exchange of Tehran Securities. Productivity Management, 38(38), 208-181.
Maradi, M., Salehi, M., & Arianpoor, A. (2012). A comparison of working capital management of chemical and medicine listed companies in Tehran Stock Exchange. International Journal of Business and Behavioral Science, 2(5), 62-78.
Jabbari, H., Sadeghi, Z., & Askari, S. A. (2013). Cash flow, earning opacity and its impact on stock price crash risk in Tehran stock exchange. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(4), 138-145.
Balouei, E., Anvary Rostamy, A. A., Sadeghi Sharif, S. J., & Saeedi, A. (2018). The impacts of financial structure on financial performance of banks listed in Tehran Stock Exchange: An empirical application. Advances in Mathematical Finance and Applications, 3(3), 11-26.