Literature Review Of Working Capital Management

Literature Review Of Working Capital Management-77
On the other hand, high inventory levels and flexible credit sales policy can contribute to increased sales.Because sales on credit allow the customer to examine the product before paying, it may increase sales [9].

On the other hand, high inventory levels and flexible credit sales policy can contribute to increased sales.Because sales on credit allow the customer to examine the product before paying, it may increase sales [9].

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According to the World Bank data, the share of the industry sector in the gross domestic product (GDP) of emerging countries such as China, India, and Brazil in 2016 is 40, 29, and 21%, respectively [2].

For Turkey, which is among the emerging countries, the industry sector is important for the country economy in terms of value added export and employment [3].

WCM is important due to the effect on profitability of firm, firm’s risk, and the firm value [18].

In this context, this study aims to reveal the tradeoff between WCC and firm’s profitability by using the data of the firms listed on Borsa Istanbul (BIST) Industry Index in Turkey.

While lower investment in the working capital expressed as aggressive working capital policy is associated with higher returns and higher risk, more investment in the working capital expressed as conservative working capital policy is associated with lower return and lower risk [14].

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The firm has to choose between aggressive and conservative working capital policies depending on its purpose [15].Effective WCM is a significant factor affecting the survival of the firm, the continuity of its activities, and the maintenance of liquidity and profitability [16].Excessive working capital like inadequate working capital has led many businesses to fail and prevent their growth [17].There are some advantages to work with high inventory levels such as preventing customer losses caused by not having enough stock level and protecting against price volatilities [10].However, the high inventory and loose trade credit policies lead to the locking of the money to the working capital [9].Working capital, which is seen as the lifeblood of a business, has an important role in the return of the owner’s reckoning, and has a decisive influence on liquidity [5], is important at this point.Firms need working capital to begin its business operations, carry on its activities efficiently, and meet its short run obligations [6].The financing problem is one of the most important problems faced by these firms.These firms need to be able to use their existing resources effectively and be self-sufficient because of the scarcity of funding resources and the insufficient accumulation of capital.A firm can collect its receivables in a short time and restrict credit sales to reduce account receivables and increase cash inflows.However, rigid sales policies and low credit sales would lead to loss of sales, thus causing profits to fall [6].

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