Crisis of 2008 onwards, especially in developed countries, and interestingly enough sales have grown in emerge markets since then, we will try to prove that efficient and effective use of working capital management should have a lot to offer on optimising a firms profitability. In order to do so, this research would run into the effects of the cash conversion cycle and recognise how individual components of the cash conversion cycle influence the profitability of the firms in the industry and therefore demonstrate the correlation between the working capital management and profitability.
Evidence from 16 out of the 20 world largest cement companies, as claimed on the global cement magazine, will be used as samples. This research will cover 6 years period from 2008 to 2013.According to Awan, Shahid, Hassan & Ahmad (2014), businesses need money to carry out short term roles like raw material purchases, workmen wages, and payment of wages at the right time and other short but day to day expenses. Working capital consists of the current assets and the current liabilities. Barad (2010) believes that there is change of focus from the traditional company long term success focus to the industry adopting as system where working capital management efficiency is vital.
Firms never want to get into a situation funds are tied up in fixed assets that are idle which according to Panigrahi (2013) affect the company productivity and reduce its ability to invest in more profitable ventures. Working capitals normally result from the lag existing between the cost of goods sold and the revenue from the sales. A well managed working capital normally helps in enhancing corporate strategy in order to assist in creating shareholder value.
Maintaining liquidity is an important objective of every company however the main objective of this production firms is to make profit. Working capital include components like marketable securities, cash, account receivables and inventory management and all this has a role to play in determining the overall objective (Panigrahi, 2012). Therefore, according to Eljelly (2004), working capital is quite important when comparing the profitability and the liquidity of two firms or more forms especially companies under same line of operations.
Thus, such decisions like amount and the compositions of current assets and their financing should be made by a person with right technical skills on financial issues. Current assets are not the same
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