Title
The title of the study is IMPACT OF WORKING CAPITAL IN EATERY FIRMS. This paper will show the different approaches, methodologies and instruments to be used in order t meet the objectives and goals of the future study.
Background/Literature Review
Working capital management is important because of its effects on the firm’s profitability and risk, and consequently its value (Smith, 1980). Specifically, working capital investment involves a tradeoff between profitability and risk. Decisions that tend to increase profitability tend to increase risk, and, conversely, decisions that focus on risk reduction will tend to reduce potential profitability. Gitman (1974) argued that the cash conversion cycle was a key factor in working capital management. Actually, decisions about how much to invest in the customer and inventory accounts, and how much credit to accept from suppliers, are reflected in the firm’s cash conversion cycle, which represents the average number of days between the date when the firm must start paying its suppliers and the date when it begins to collect payments from its customers. Previous studies have used measures based on the cash conversion cycle to analyze whether shortening this cycle has positive or negative effects on the firm’s profitability. Empirical evidence relating working capital management and profitability in general supports the fact that aggressive working capital policies enhance profitability (Jose et al., 1996; Shin and Soenen, 1998; for US companies; Deloof, 2003; for Belgian firms; Wang (2002) for Japanese and Taiwanese firms). This suggests that reducing working capital investment is likely to lead to higher profits.
The working capital meets the short-term financial requirements of a business enterprise. It is a trading capital, not retained in the business in a particular form for longer than a year. The money invested in it changes form and substance during the normal course of business operations. The need for maintaining an adequate working capital can hardly be questioned. Just as circulation of blood is very necessary in the human body to maintain life, the flow of funds is very necessary to maintain business. If it becomes weak, the business can hardly prosper and survive. Working capital starvation is generally credited as a major cause if not the major cause of small business failure in many developed and developing countries (Rafuse, 1996). The success of a firm depends ultimately, on its ability to generate cash receipts in excess of disbursements. The cash flow problems of many small businesses are exacerbated by poor financial management and in particular the lack of planning cash requirements (Jarvis et al, 1996).
Methodology
Descriptive method will be used in the study. According to Creswell (1994) it can help in order to show the different facts that are connected with the nature of the status of the current problem or condition as it happens at the time of the study. This is the reason why, it is considered as one of the most applied methodology in most studies. Furthermore, it will also be helpful in order to offer logical use in the studies which focus on dissemination of information, at the same time, it can help in order to investigate based on normative standards. It will be helpful in order to focus on the practices which exist, beliefs and processes that are currently going on and the effects that are being felt and experienced, together with the trends that re currently developing (Best, 1907).
Data Collection
Survey questionnaire will be used in order to gather primary data from the respondents. Likert scales will be used, where in the respondents will be asked to rate the level of their agreements towards the statements given. This will also be advantageous because it will make filling up questionnaire a lot easier and faster.
The equivalent weights of the answers are:
Range Interpretation
4.50 – 5.00 Strongly Agree
3.50 – 4. 49 Agree
2.50 – 3.49 Uncertain
1.50 – 2.49 Disagree
0.00 – 1.49 Strongly Disagree
Data Analysis
All of the data will be evaluated with the use of SPSS software. Thus, in order to come up with the results and findings of the study, frequency, percentage and weighted mean will be calculated. The following are the formulas to be used:
1. Percentage – will be calculated in order to determine the magnitude of the responses to the questionnaire (Research Methods Knowledge Base, n.d.).
2. Weighted Mean
References
Best, J. W. (1970). Research in Education, 2nd Ed. Englewood Cliffs. N.J.: Prentice Hall, Inc.
Creswell, J.W. (1994). Research design. Qualitative and quantitative approaches. Thousand Oaks, California: Sage.
Deloof, M. (2003), “Does working capital management affect profitability of Belgian firms?”, Journal of Business, Finance and Accounting, Vol. 30 pp.573-87.
Gitman, L.J. (1974), “Estimating corporate liquidity requirements: a simplified approach”, The Financial Review, Vol. 9 pp.79-88.
Jarvis, R., Kitching, J., Curran, J. and Lightfoot, G. 1996., “The Financial Management of Small Firms: An Alternative Perspective”, ACCA Research Report No. 49
Jose, M.L., Lancaster, C., Stevens, J.L. (1996), “Corporate return and cash conversion cycle”, Journal of Economics and Finance, Vol. 20 pp.33-46.
Rafuse, M. E. 1996. “Working Capital Management: An Urgent Need to Refocus”, Journal of Management Decision, Vol. 34 No 2, pp. 59-63
Shin, H.H., Soenen, L. (1998), “Efficiency of working capital and corporate profitability”, Financial Practice and Education, Vol. 8 pp.37-45.
Smith, K. (1980), “Profitability versus liquidity tradeoffs in working capital management”, in Smith, K.V. (Eds),Readings on the Management of Working Capital, West Publishing Company, St Paul, MN, pp.549-62.
Wang, Y.J. (2002), “Liquidity management, operating performance, and coroporate value: evidence from Japan and Taiwan”, Journal of Multinational Financial Management, Vol. 12 pp.159-69.
Credit:ivythesis.typepad.com
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