Working Capital Management and UK Listed Companies Profitability Dissertation

Working Capital Management and UK Listed Companies Profitability - Dissertation Example Research Question How do the working capital management affect the profitability of manufacturing companies of UK? 2. Aim and Objectives of the Research The research paper will strive to deal with the relationship of companies’ working capital management and their profitability. Working capital management is vital area for the growth and sustainability of companies and hence, it plays very significant role in determining the level of profitability. However, the corporate environment of different countries varies and hence, management of specific region have their different priorities for achieving growth and success. This is the reason correlation between the two or more variables of different regions vary. The primary aim of this paper is to examine the relationship of working capital management with profitability level of the listed manufacturing companies in UK. Working capital management includes number components that determine the efficiency of the management. Considerin g these facts, the research will also focus on certain specific objective as follows. To determine the efficacy of management in managing working capital of manufacturing listed companies of UK. To present and understand theoretical background relating to efficiency of working capital management and company growth. To determine the relationship between different components of working capital management and components of profitability. To determine influence of efficient working capital management on level of profitability and growth in listed manufacturing companies of UK. 3. Literature Review 3.1. Theoretical Background of Research This section will attempt to a theoretical background relation to the working capital management and profitability. Working capital management has always been a very critical area for companies’ growth and sustainability. Working capital mainly includes two basic components i.e. current liabilities and current asset. The efficient management of th ese two types of capital is known working capital management (Siddiqui, 2006, p.279). In order to present a detail background of working capital management, this section will explicitly present need of working capital and its importance for the growth of a company. Next, it will also analyse the different objectives of working capital management. Efficient working capital management is also highly required for managing risks within a company. A company is always exposed to number of risks and the working capital management is directly related to certain risks like operational risks, liquidity risks, credit risks, and information reporting risks. An efficient management of working must assure a lower level of risks. Therefore, working capital management can also be termed as a tool to overcome the stated risks that may create threat to sustainability of a company (Sagner, 2010, p.201). Another major role of working capital management is that it strives to create a trade off between r isk and profitability. In this regard, the risk is technically insolvency which is measure by net working capital (NWC). It has been found that many firms can operate in spite of facing technically insolvency. However, in such case, the company suffered from ‘slow poisoned’ as technically insolvency negatively affect growth, profitability and operational efficacy. If the management is unable to overcome this technically insolvency position, it may lead to business collapse (Khan, 2004, p.26.4). Using the financial techniques like ratio analyses, efficacy level of the working capital can be determined and it also reflect the managements’