THE RELATIONSHIP BETWEEN WORKING CAPITAL WITH PROFITIBILITY, LIQUIDITY AND SOLVENCY
Journal: Indo American Journal of Pharmaceutical Sciences (IAJPS) (Vol.04, No. 05)Publication Date: 2017-05-07
Authors : Mehri Alipoor; Dr.Mohammadreza Shoorvarzy;
Page : 1303-1312
Keywords : working capital; profitability; cash conversion cycle;
Abstract
This study examines the relationship between working capital, liquidity, profitability & solvency of listed companies in Tehran Stock Exchange's. For this purpose, 107 companies were selected in the period 1393-1383. Often been observed that when financial analysis is done, the profitability of the business is emphasized more than its liquidity. Of course, it is quite evident, Because the most important financial goal of any business is profit. So managers focus more on profitability. But another important variable is liquidity. The company's ability to do short-term financial obligations. If a company does not have the ability to meet short-term financial obligations, a step toward bankruptcy proceeding. Therefore, liquidity management, including the amount or value of the investments in liquid assets to meet short term obligations to creditors and others. The relationship between working capital and profitability in financial management has been an interesting debate. High levels of investment in working capital resulted in low profitability and lower investment returns caused the low liquidity. . management To maximize shareholder wealth needs to replacment relationship between liquidity and profitability. Every organization, whether for-profit or nonprofit, regardless of the size and type of business ,needs to necessary amount of working capital. The most important factor to maintain liquidity, survival, financial strength and profitability of the business is working capital. Usually observed that , If the company is willing to adopt greater risk for bumper profits and losses,so minimizes Working capital relative to revenue generated . If you wish to upgrade and increase liquidity, working capital level increases. This technique aims to lower sales volume and consequently affect profitability. Working capital management involves planning and control on current assets and liabilities in a way that resolve The risk of inability to meet short-term commitments on the one hand and avoid excessive investment in these assets on the other. Many studies have emphasized this that Managers spend considerable time for their daily problems and one the most important of them is related to working capital decisions. (Raymond New, 1391 -Rhman and Nasr, 2014 – Nazir & Afra, 2011 -) Keywords : working capital , profitability , cash conversion cycle
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