University of Twente Student Theses


The effects of working capital management on the profitability of Dutch listed firms

Soekhoe, Shaskia G. (2012) The effects of working capital management on the profitability of Dutch listed firms.

[img] PDF
Abstract:Purpose: The objective of this study is to establish the relationship between working capital management and profitability over a period of five years for Dutch Listed firms. This study investigates the effects of Working Capital Management on the profitability of Dutch listed companies. The focus in this study is on the net working capital which is according to Melrich and Leach (2009) referred as current assets less current liabilities. Even though a number of studies about Working Capital Management were undertaken in many countries around the world, the understanding about what the effects of working capital management have on the profitability is not explicit. To date there has been no study examining the Dutch Listed Firms. The focus in this study regarding the effects of working capital management on firm profitability is done by also taking in to account that each firm of a certain industry has its own way of managing working capital. This study will also give some insight how the working capital in the Netherlands is managed in order to increase profitability. Design/methodology/approach: For this research secondary research is utilized namely the annual reports provided by Dutch Listed companies to the public. In accordance with the listed firms on Euronext the annual reports could be easily obtained from the website where annual reports are available for the public. The focus in this research will be on all sectors with the exception of the financial institutes such as banking and finance, insurance, leasing, renting, and other service. Firms which do not have annual reports available from the year 2006 to 2010 are eliminated. Findings: The research was conducted based on the research question: “What is the relationship between the working capital management components and profitability within Dutch (listed) firms?” The findings of this study shows that there is significant and negative relationship between the profitability of Dutch listed firms and the number of days accounts payables and the number of days accounts receivables. This implies that firms which wait longer to pay their bills to suppliers and which grant a longer credit period to their customers generate less profit. The effects of working capital management on the Shaskia G. Soekhoe profitability of Dutch listed firms 3 Furthermore, there is a positive and significant correlation between the profitability and the number of day‟s inventories which indicates that firms with high inventory levels have high profits. The study also results in a positive correlation between the profitability of firms and the cash conversions cycle. However, this finding was statistically insignificant. Limitations: The limitation of this study is that the sample used for this research may be too small. The reason for this small sample is due to limited time and financial support. It is required to allocate a long period of time on actual sites to investigate and understand the Working Capital Management practices. Another limitation is that the percentage per industry used in the research may not be representative of the industry sectors in the Netherlands due to the unavailable data of certain years.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:
Export this item as:BibTeX
HTML Citation
Reference Manager


Repository Staff Only: item control page