Title: Profitabilty, Value and Working Capital Management: Some Evidence from Europe
Author(s) : Juliette Aucouturier, Trevor Chamberlain
This study investigates the impact of working capital management on the profitability and value of European public firms between 2004 and 2016. The study utilizes a sample of companies operating in numerous sectors and countries within a developed region and encompasses the 2008 financial crisis. The cash conversion cycle together with its components: days receivable outstanding, days payable outstanding and days inventory held are used as proxies for working capital management. Return on assets and Tobin's q are used to measure profitability and value respectively, while the current ratio, total debt ratio, sales revenue and rate of growth in sales are used as control variables. The study's results suggest that managers should take a nuanced view of the impact of working capital on profitability and value. In particular, they question whether there is a systematic relationship between working capital and profitability and should stimulate discussion about the liquidity-profitabilty trade-off.