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Global economic integration for developing countries through economic liberalization and democratization is accepted as the best way to overcome destitution and discrimination .At this point, the industry sector plays a significant role.The firm that invests more in current assets is more liquid than a firm that does not invest.
According to the World Bank data, the industry sector’s share in GDP is 32% .
The share of the industry sector in exports is around 92% .
Deferment of payments to suppliers can enable the firm to evaluate the product bought and may be a cheap and flexible funding source.
But, postponing payments can be expensive, if the firm has got a discount for early payment .
WCM is important due to the effect on profitability of firm, firm’s risk, and the firm value .
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.
This study, which investigates the impact of the WCM on the profitability of Turkish industrial firms, is considered to contribute on the determination of working capital investment levels of these firms, determination of the distribution among the working capital components, effective use of scarce resources, and resource supply and sustainability of future investments by applying a working capital that will increase the profitability.
There are a number of studies covering the developed countries in the literature, while there are limited studies covering the emerging countries.
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 .
The firm has to choose between aggressive and conservative working capital policies depending on its purpose .