Aveneu Park, Starling, Australia

Introduction: the world brewery markets increased its concentration on



History told us that corporate finance department
makes decisions on these three fields:

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Capital Structure.

Working Capital

If we compare the working of these three fields then
we see that first two which are capital budgeting and capital structure are
more attractive for long-run capital management. (Chiou, Cheng and Wu, 2006:149)

But on the other hand if we talk about third field
which is working capital management, it is also very important for financial
sectors or corporations. Because its effects on Profitability and Liquidity.  (Nazir and Afza, 2009:28)

It is possible to say that working capital
management can hold the firms as blood and life. Due to its efficient
management success becomes sure for the firm and its in-efficiency may cause
the insolvency of the firm. (Padachi et al., 2008:43)

Especially in today’s global recession environment,
all firms regardless of their size and industry need to get positive cash flow
and liquidity.  (Stewart, 2009:16)


It’s along five to ten years ago, that the world
brewery markets increased its concentration on investments outside the
geo-graphical location with the wave of business combination along brewery. The
current pressure on cash and credit is alarming situation for the survival of
many businesses in the whole world especially in Malaysia, which is considered
as the source of the company assets and liabilities were generally introduce to
the working capital.


The main objective is to accomplish the firms which
having the ability to continue the operating with enough cash flow for payment
of both upcoming operational expense and short-run debt. (Lamberson, M, 1995)


The efficient management of working capital is
likely to bear remarkable results and if we forget, then it is very highly
threatening to any firm.
and Kamalavalli, 2009) Many firms invest
their huge amount in working capital, as well as short-term payments are used
as a source of finance. Firms spend their huge bundle of amount to maximize
their values.

On the other way if the credit policy is high and
also the inventory level is huge then it take the firm to the highest scales. (Long, Malitz
and Ravid, 1993; and Deloof and Jegers, 1996) Because supplier has remarkable advantages on cost
to provide customers credit over financial institution it can be the cheap
source of credit for customers.

(Petersen and
Rajan, 1997) The less important side
is the issuance of trade credit and holding that inventories to ensure that the
money is locked-up or not.

Working capital management is important because of
the risk and profitability of the firm and therefore to its values. (Smith, 1980) If we reduce the cost of production process it interferes to
maintain the high inventory level, and we will face loss in business due to
lack of products, it will reduce over supply cost and protects the fluctuations
of the prices of products. (Blinder and Manccini, 1991)

 On the other hand, allowing the trade credit
will favors the firm’s sales in many ways. Trade credit will act as successful
deduction. (Brennan, Maksimovic and Zechner, 1988; Petersen and
Rajan, 1997) Motivated customers will acquire the
products stock at the time of its low demand. (Emery, 1987)


it allows checking all the products and services and their quantity and quality
then carried out and helps firms to build-up strong relationships with their
customers. (Ng, Smith
and Smith, 1999)


liabilities are the main sources of external finance and facing difficulties in
long-term capital market and obtaining funding. (Petersen and Rajan, 1997) and they have to face the finance
pressure. (Whited,
1992; Fazzari and Petersen, 1993) Liquidity of on-going
firm is not relaying on another support on the liquidation values of assets and
current liabilities of the firm.


instead of operating cash flow which is generated by those assets. (Soenen, 1993)
capital management s there for a very sensitive matter in the field of finance.

this we study about the different facts that in which working capital
management will effects on profitability of the firm. Our findings suggest that
managers can create value by reducing their firm’s number of day’s accounts
receivable and inventories.


reduce the cash conversion cycle can also improve the profitability of the
firm’s. Secondly it presents the methodological framework which includes sample
model and variables. Thirdly there were discussions and statistical analysis of

there were a conclusion about how the working capital management effecting the

Literature Review:

Is used net trade cycle for measuring the working
capital management in order to investigate the working capital management and
corporate profitability? It is calculated as:

= Inventory + Accounts Receivable – Accounts Payable * 365 / Sales and
represents the numbers of “days sales” which the company has to finance its
working capital management and equal terms and conditions.

For these reasons NTC is used for measuring the
working capital management and find a negative relationship between the length
of the firm and its trade cycle. Shin and Soenen (1998)

On the other hand it can be saying that the most
powerful and popular measure of working capital management is the cash
conversion cycle (CCC). It refers to the CCC days of expense to that day of
purchasing raw material and the collection of cash from the sales of the
products. (Sathyamoorthi
and Wally-Dima, 2008:12).  

Lazaridis and Tryfonidis (2006) they
find a negative relationship
between CCC and Profitability. The results of these studies were focused on
large firms; later on some other results also show its negative relationship
between profitability and CCC for the small and medium sized firms.

There have been remarkable Mergers and acquisitions in
the recent time in the world beer industry. This industry has come in to being
in the competition of other growing industries and to make a lead for them. In
1993 Nigeria breweries were the largest brewer on that time of brewer
countries. Others also play an important role in this lead as recently five
years Heineken and Carlsberg and its global assets were Scottish and Newcastle.
Consolidation and Domination that global leading industry have increased in
recent years. (IBIS World,

is expected that Chinese brewing industries will increase its concentration in
future. In terms of consumption China has the largest beer market, and its
remarkable increase in concentration in this market and what its remarkable
effect on this whole market. Many researchers have worked on different ways in
working capital management in different environments:

Abbasali and
Milda (2012) were
study about the impact of working capital management on profitability and
market evaluation studied a sample of companies. Return on assets and return on
working capital investment ratios were measured by the profitability of the
firms, and Q is for to measure the market ratio values of the company. Their
results will show us the remarkable relationship between working capital
management and profitability.

Mary, John and
Laurie (2010) they examine the effect of firm
profitability on inventory that on the tragic attacks of terrorist on Sep 11,
2001. That Hurricane Katrina with the objective of the supply chain and such
type of the relationship.

finding indicate that’s the firms profitability effect on inventory as the
remarkable decline for the manufacturing in the period of Sep 11, 2001 did not
make any remarkable effects in the post of Katrina.

Hassan, Liaqat,
Ch. Abdul and Muhammad (2011) they examine the effect
of working capital management on profitability with-out compromising the
liquidity of the firm. Sixty-five company’s data has been collected to
determine the market value of those firms. Return on assets and return of cash
of invested capital, these were used to measure the financial performance of
the firm.

financial ratios, cash conversion cycle, current ratio, current assets, total
assets ratio, current liabilities to total assets ratio, debt assets ratio,
these were used as variables to measure multiple regression techniques. This
will show us the remarkable relationship between working capital management
ratios of the firms and profitability ratios of the firms.

Hasan, Halil,
Arzu and Salih (2011) they studied the panel data in
Istanbul stock exchange market from 2005-2009 to shed light and examine the
relationship between working capital management and profitability. The results
are like if we reducing over cash conversion cycle then the working capital
management affects positive in measuring the profitability on return on assets.

Habib, Syed and
Igbal (2012) they investigate the Pakistan market
with respect to mean variance and trade off and find the impact of investor
sentiments. They researched and find that the stock market is not remarkably
relates to low sentiments they relates to high sentiments and shows its
negative effect.

Rehman &
Nasr, (2007) they studied on a
sample of 94 Pakistani firms listed on stock exchange Karachi for six-years
1999-2004 shows a negative relationship between the variables of the working
capital management and profitability by liquidity of the firms.

Afza and Nazir
(2007) they studied through
cross sectional models on working capital policies and profitability and risks
of the firms. It shows us the negative relationship between working capital
management of the firms and profitability of the firms and shows the aggressive
reaction on working capital investments and financing policies.

Christopher and
Kamalavalli, (2009) they studied
that and focused on 14 hospitals of India from 1996-97 to 2005-06. Their
correlations and regression analysis signifying that working capital management
have negative effect on profitability.

Jose, Lancaster
and Stevens (1996) they studied for twenty-year from
1974-93 and of 2718 firms and they resulted that the working capital management
and cash conversion cycle have aggressively enhance the profitability.

LaPlante. And Moussawi (2008) they
found that the work in capital management is to the firm value and
U.S corporation from 1990-2004. They studied about stock exchange market and
studied that some firms invest in working capital management.

also give us the results and conclusions of those researches already conducted
on the same area for different countries and environment from different
aspects. On basis of these researches done in different countries.


Karaduman, H. A., Akbas, H. E., Ozsozgun, A., &
Durer, S. (2010). Effects of Working Capital Management on Profitability: The
Case for Selected Companies in the Istanbul Stock Exchange (2005).

Nutting, P. A., Miller, W. L., Crabtree, B. F.,
Jaen, C. R., Stewart, E. E., & Stange, K. C. (2009). Initial lessons from
the first national demonstration project on practice transformation to a
patient-centered medical home. The Annals of Family Medicine, 7(3), 254-260.

Lamberson, M (1995). Changes on working capital of
small firms in relation to change in economic activities. American Journal of
Business, 10(2), 45-50.

Christopher, S. B., & Kamalavalli, A. L. (2009).
Sensitivity of profitability to working capital management in Indian corporate
hospitals. International Journal of Managerial and Financial
Accounting, 2(3), 213-227.

Petersen, M.A., & Rajan, R. G. (1997). Trade
credit: theories and evidence. The review of financial studies, 10 (3),

Smith, K. (1980). Profitability versus liquidity
tradeoffs in working capital management. Readings on the management of working
capital, 549-562.

Blinder, A. S., & Maccini, L. J. (1991). The
resurgence of inventory research: what have we learned? Journal of Economic
Surveys, 5(4), 291-328.

Petersen, M. A., & Rajan, R. G. (1997). Trade
credit: theories and evidence. The review of financial studies, 10(3), 661-691.

Emery, G. W. (1987). An optimal financial response
to variable demand. Journal of Financial and Quantitative Analysis, 22(2), 209-225.

Smith, J. K. (1987). Trade credit and informational
asymmetry. The journal of finance, 42(4), 863-872.

Ng, C. K., Smith, J. K., & Smith, R. L. (1999).
Evidence on the determinants of credit terms used in interfirm trade. The
journal of finance, 54(3), 1109-1129.

Petersen, M. A., & Rajan, R. G. (1997). Trade
credit: theories and evidence. The review of financial studies, 10(3), 661-691.

Fazzari, S. M., & Petersen, B. C. (1993).
Working capital and fixed investment: new evidence on financing constraints.
The RAND Journal of Economics, 328-342.

Dobson, J., & Soenen, L. (1993). Three
agency-cost reasons for hedging foreign exchange risk. Managerial Finance,
19(6), 35-44.

Shin, H. H., & Soenen, L. (1998). Efficiency of
working capital management and corporate profitability. Financial practice and
education, 8, 37-45.

Karaduman, H. A., Akbas, H. E., Ozsozgun, A., &
Durer, S. (2010). Effects of Working Capital Management on Profitability: The
Case for Selected Companies in the Istanbul Stock Exchange (2005).

 Ruthven, P.
K. (2012). A snapshot of Australia’s digital future to 2050. IBIS World.

Uchenna, W., Mary, I., & Okelue, D. (2012).
Effects of working capital management on profitability: Evidence from the top five
beer brewery firms in the world. Asian Economic and Financial Review, 2(8),

Rogers, M. M., Schatzberg, J., & Schatzberg, L.
The Relationship between Inventory Management and Firm Profitability: Sector
Consequences of Catastrophic Supply Chain Disruptions.

Hassan, M. A., Liaqat, A., Ch. Abdul, R. and
Muhammad, A. (2011), “Impact of Working Capital Management on Profitability and
Market Valuation of Pakistani Firms”, European Journal of Economics, Finance
and Administrative Sciences, Issue 32, pp. 49 – 54.

Ahmed, H., Ali, S. Z., & Mahmood, I. (2012).
Impact of Investor sentiment on Mean-Variance Tradeoff in Pakistan.
International Journal of Asian Social Science, 2(7), 999-1004.

Rehman, A., & Nasr, M. (2007). Working capital
management and profitability–case of Pakistani firms. International review of
business research papers, 3(1), 279-300.

Afza, T., & Nazir, M. S. (2007). Is it better to
be aggressive or conservative in managing working capital. Journal of quality
and technology management, 3(2), 11-21.

Christopher, S. B., & Kamalavalli, A. L. (2009).
Sensitivity of profitability to working capital management in Indian corporate
hospitals. International Journal of Managerial and Financial Accounting, 2(3),

Jose, M. L., Lancaster, C., & Stevens, J. L.
(1996). Corporate returns and cash conversion cycles. Journal of Economics and
finance, 20(1), 33.

Palombini, N. V. N., & Nakamura, W. T. (2012).
Key factors in working capital management in the Brazilian market. Revista de
Administração de Empresas, 52(1), 55-69.



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