The effect of working capital management on profitability of electronic and electrical equipment firms / Asma Nabihah Mohd Arshad

Working capital management (WCM) is crucial part in business yet this aspect is getting little attention of researchers. However, WCM is able to grab the attention of the researchers after financial crisis 2008. Capital budgeting, capital structure and dividends are the examples of traditional focus of corporate finance that involving long term financial decisions. WCM involved the management of current asset and current liabilities of firm. WCM is important as poor management of working capital lead to liquidity problem. This study investigates the relationship between WCM and profitability of electric and electronic equipment firms in Malaysia by using panel regressions. Electrical and electronic is one of the main exports of Malaysia. The firms must be able to manage their financing efficiently. This study using six companies listed in Bursa Malaysia for the period of 10 years which are from 2007 to 2016. The financial data of each company are obtained from Bursa Malaysia as it provides a reliable data of the companies. The dependent variable used in this study is return on asset (ROA) to measure the profitability while the independent variables are cash conversion cycle (CCC), current asset to total asset ratio (CATAR), current liabilities to total asset ratio (CLTAR), current ratio (CR) and debt ratio (DR). From the study, it revealed that CATAR, CLTAR and CR are significant with ROA while CCC and DR are not significant with ROA. CLTAR and CR are negative and significant with ROA while CATAR is significant and positive with ROA. It means that CATAR, CLTAR and CR give significant impact to ROA.