Independent University, Bangladesh
Semester: Spring 2016
Course Title: Business Research Methods
Course Code: BUS 485
WORKING CAPITAL MANAGEMENT AND ITS EFFECT ON PROFITABILITY ON BANGLADESHI BANKS
S/L | NAME | ID | MARKS |
| | | Report | Presentation | VIVA |
01 | Md. Nazmul Amin Naser | 1321552 | | | |
02 | Indrajit Bhowmik | 1321401 | | | |
03 | Heaven John Dessai | 1321488 | | | |
04 | Mahbubur Rahman | 1322001 | | | |
Table of Content
No. | Topics | Page No. |
1.0 | Introduction | 5 |
2.0 | Statement of the Problem | 6 |
3.0 | Purpose of the Study | 7 |
4. 0 | Literature Review | 8-17 |
4.1 | Return on Asset (DV) | 08-09 |
4.2 | Cash ...view middle of the document...
The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short term debt and upcoming operational expenses. The management of working capital involves managing inventories, account receivable, account payable and cash.
Firms with proper situation of liquidity, has enough cash for the payment of bills. On the contrary companies with improper situation cannot pay their bills on the maturity data.(pike and bill, 2006:340). Efficiency of working capital management requires maintaining an adequate level of current assets and liabilities so that a firm can discharge its liabilities easily. Gill et al. (2010). Managers interference in and judgment on financial reporting cause profitability creation and though manipulating financial reporting effects shareholders and creditors deduction about main and economic performance and conclusions based on accounting reporting (Healy and Wahlen,1999). Working capital management indicates policies and decisions which is adopting about working capital in order to change types of current assets and short term financial resources. Correct controlling the working capital management can affect importantly on the firms profitability.
Working capital management is essential to survive because of its effects on a firm’s profitability and risk, and consequently its value. Working capital management is the investment in current assets and current liabilities which are liquidated in a year or less and it is very crucial for a firm’s day to day operations.
Globally firms can maximize their value by having an optimal level of working capital. On the left hand of the balance sheet a firm has large inventory and generous trade credit policy which may lead to higher sales. Larger inventory reduces the risk of stock outs. Accounts receivable, which is a part of trade credit, stimulates sales because it allows customers to assess product quality before paying. The negative side of granting trade credit and keeping inventories is that money is locked up in working capital.(Mahmud Nozarpour1 and Hamid Norouzi1, 2015)Another component of working capital is accounts payable, which is in other words not extending trade credit but receiving it from a supplier. Receiving such a trade credit from a supplier allows a firm to assess the quality of the products bought, and can be an inexpensive and flexible source of financing for the firm. The flipside is that receiving such a trade credit can be expensive if a firm is offered a discount for the early payment. This is also the case with uncollected and extended trade credit, which can lead to cash inflow problems for the firm.
Inventory management of the company is highly effective. Modern techniques of inventory management like Economic Order Quantity (EOQ), ABC analysis, maximum and minimum level of inventory, CPM / PERT etc. are followed in a routine way.Monthly...