The Relationship between Working Capital Management and Profitability: The Case of Listed Companies in Agro and Food Industry in Thailand

Abstract

The study aims to explain the relationship between working capital management and profitability of  listed companies in the Agro industrial in Thailand. The relationship with profitability (which is measured by return on assets and return on equity), the independent variables (namely cash conversion cycle), quick ratio, current assets to total assets ratio, current liabilities to total asset ratio and sales to current asset ratio along with the control variable (which is firm size) were used to conduct this study. The data of 28 listed companies covering 16 years from 2001-2016 have been collected by using a Panel regression analysis, specifically, the Random effect model. The result revealed a significant negative correlation between the cash conversion cycle and current liabilities to total assets with return on assets and return on equity. However, the results showed that current assets to total assets are positively associated with returns on assets and return on equity. The result implied that a business with a short cash cycle will receive money from the sale of goods in a short period, and will be able to support itself without relying on external funding, and will invest in current assets, increasing sales and accounts receivable. Thus, liquidity of working capital spending and debt repayment within due date, and profitability will be affected too. Additionally, during the pre-hamburger crisis period, the cash conversion cycle, quick ratio, current assets to total assets ratio, and current liabilities to total asset ratio were related to profitability more than during the post-crisis period.