Working capital and its impact on business performance

Kód výsledku v IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216275%3A25410%2F19%3A39914701" target="_blank" >RIV/00216275:25410/19:39914701 - isvavai.cz</a>

Výsledek na webu

<a href="https://hdl.handle.net/10195/74250" target="_blank" >https://hdl.handle.net/10195/74250</a>

DOI - Digital Object Identifier

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Jazyk výsledku

angličtina

Název v původním jazyce

Working capital and its impact on business performance

Popis výsledku v původním jazyce

A number of studies indicate that the decision on the level of working capital affects business performance. Managing optimal working capital brings businesses sustained reduction of working capital, improves liquidity and increases profitability through effectively managed capital. The aim of this paper is to conduct empirical research of Czech companies on the relationship between working capital and the performance of a company. An OLS model is used that can calculate quadratic regression for calculating the optimum amount of working capital. Models are created that describe the dependency of earnings on the components that determine working capital. By deriving the quadratic function of performance, an inflection point is found, indicating a theoretical net trade cycle of 134 days for Czech companies with inventory and 70 days for Czech companies with no inventory. However, there is a level of working capital at which a higher working capital begins to be negative in terms of profitability due to the additional interest expenses and, hence, the higher probability of bankruptcy and credit risk of firms. Thus, firm managers should aim to keep as close to the optimal level as possible and try to avoid deviations from it that destroy profitability.

Název v anglickém jazyce

Working capital and its impact on business performance

Popis výsledku anglicky

A number of studies indicate that the decision on the level of working capital affects business performance. Managing optimal working capital brings businesses sustained reduction of working capital, improves liquidity and increases profitability through effectively managed capital. The aim of this paper is to conduct empirical research of Czech companies on the relationship between working capital and the performance of a company. An OLS model is used that can calculate quadratic regression for calculating the optimum amount of working capital. Models are created that describe the dependency of earnings on the components that determine working capital. By deriving the quadratic function of performance, an inflection point is found, indicating a theoretical net trade cycle of 134 days for Czech companies with inventory and 70 days for Czech companies with no inventory. However, there is a level of working capital at which a higher working capital begins to be negative in terms of profitability due to the additional interest expenses and, hence, the higher probability of bankruptcy and credit risk of firms. Thus, firm managers should aim to keep as close to the optimal level as possible and try to avoid deviations from it that destroy profitability.

Druh

J_SC - Článek v periodiku v databázi SCOPUS

CEP obor

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OECD FORD obor

50206 - Finance

Projekt

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Návaznosti

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Rok uplatnění

2019

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název periodika

Scientific Papers of the University of Pardubice - Series D, Faculty of Economics and Administration

ISSN

1211-555X

e-ISSN

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Svazek periodika

27

Číslo periodika v rámci svazku

46

Stát vydavatele periodika

CZ - Česká republika

Počet stran výsledku

12

Strana od-do

55-66

Kód UT WoS článku

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EID výsledku v databázi Scopus

2-s2.0-85073831363