Working Capital Literature Review

2320 Words10 Pages
Introduction There are two concepts of working capital – gross working capital and net working capital. While gross working capital refers to a firm’s investment in total current asset net working capital means the difference between current assets and current liabilities Pandey (2004). According to Rose et al. (2000) a company’s working capital policy refers to the determination of an appropriate level for each of the component of working capital viz. cash, accounts receivable, inventories etc. And they defined working capital management as setting working capital policy and implementing it on day today basis. A company’s working capital affects its liquidity as well as profitability. Hence, it should be properly managed (Taleb et al., 2010).…show more content…
Therefore, the success and failure of a firm depends on how efficiently it manages its working capital. That means if a firm is efficient in its wc management it will continue successfully but if it doesn’t the results could go beyond mere loss of profit – to its down fall. This idea is strengthened by Smith (1973) who claimed that considerable number of firm failures may be due to inability to manage working capital properly. 1.2 Literature Review 1.2.1 Theoretical Literature According to Pandey (2004) there are two concepts of working capital – gross working capital and net working capital. The amount invested in total assets of a firm refers to its gross working capital. Net working capital, on the other hand, is current assets net of current liabilities. Working capital has the following components or elements, classified as current assets and current liabilities. i. Current…show more content…
B. Elias (2013) examined public listed companies in Malaysia. The study used 150 listed companies from seven different sectors for 10 years period. The data was analyzed using correlation and pooled OLS methods. The researchers found evidences of association between working capital management and its determinant factors. Accordingly the variable DEBT is found to be significantly negatively associated with both cash conversion cycle (CCC) and working capital requirement (WCR). While capital expenditure showed positive and significant relationship with CCC, its relationship with WCR is significant and negative. In addition free cash flow (FCF) revealed negative significant association with CCC and positive significant relationship with
Open Document