Godfred Adjapong Afrifa

The Relative Importance of Working Capital Management and Its Components to SMEs Profitability

Purpose – This paper reports the results of an investigation of the relative importance of working capital management, measured by the cash conversion cycle (CCC), and its components (inventory, accounts receivable and accounts payable) to the profitability of SMEs. Design/methodology/approach – The paper employs panel data regression analysis and a questionnaire survey on a sample of 133 Alternative Investment Market (AIM) listed SMEs. The panel data analysis utilises financial data for the period 2005 to 2009. The questionnaire survey results are based on 19 SMEs that responded. Findings – Panel data analysis results show that the management of accounts payable (AP) and accounts receivable (AR) is important for SMEs profitability. However, AP management is relatively more important than AR management. Inventory (INV) and CCC management is not important for SMEs profitability. Questionnaire results suggest that management of CCC and all its components is perceived as important for SMEs profitability. In terms of relative importance, AR management is most important, followed by AP, INV and CCC respectively.Research limitations/implications – The sample is limited to AIM listed SMEs, and therefore the findings cannot be generalised to all companies.Practical implications – Overall the results imply that the SMEs need to concentrate their limited resources on managing AR and AP in order to be more profitable.Originality/value – The study is the first to investigate the relative importance of WCM and its components to SMEs profitability and use both regression analysis and questionnaire survey.

Net working capital, cash flow and performance of UK SMEs

Purpose - – This paper aims to examine the influence of cash flow on the relationship between net working capital and firm performance. Design/methodology/approach - – The paper uses unbalanced panel data regression analysis on a sample of 6,926 non-financial small and medium enterprises in the UK for the period from 2004 to 2013. Findings - – The results indicate a strong concave relationship between net working capital and performance in the absence of cash flow; however, the relationship becomes convex after taking cash flow into consideration. The results further show that firms with cash flow below the sample median exhibit lower investment in working capital, but firms with cash flow above the sample median have higher investment in working capital. The results suggest that managers should consider their firms cash flow when determining the appropriate investment to be made in working capital, so as to improve performance. Practical implications - – Overall, the results suggest that whilst firms with limited cash flow should strive to reduce investment in working capital, firms with available cash flow should increase investment in working capital to improve performance. Originality/value - – This current study incorporates the relevance of cash flow in assessing the association between working capital management and firm performance.

Working capital level influence on SME profitability

This paper aims to report the results of an investigation of the relationship between working capital level, measured by the cash conversion cycle and profitability of Small and Medium Enterprises (SMEs). The paper employs panel data regression analysis on a sample of 160 Alternative Investment Market (AIM) listed SMEs for the period from 2005 to 2010. The empirical results show that there is a concave relationship between working capital level and firm profitability and that there is an optimal working capital level at which firms’ profitability is maximised. Furthermore, an examination as to whether or not deviations from the optimal working capital level reduce firm profitability indicate that deviations above or below the optimum decrease profitability. The sample is limited to AIM listed SMEs, and therefore the findings cannot be generalised to all firms. Overall, the evidence suggests that firms should strive and attain the optimal working capital level in order to maximise their profitability. The results are of importance to both SMEs and policy makers providing insight into the nature of cash conversion cycle and its relationship to SMEs profitability.

A quantitative model for environmentally sustainable supply chain performance measurement

Abstract The development of robust mechanisms for supply chain performance measurement have been identified as an integral step needed for the transition towards sustainable supply chain systems and a greener global economy. However, measuring the environmental performance of supply chains is a challenging task, due to several factors, such as the lack of standardised methodologies and the inherent multi-criteria nature of the problem. By leveraging the capability of a Multi-Regional Input–Output framework to handle the complex and global nature of supply chains, the current work presents a robust environmental sustainable performance measurement model underpinned by industrial lifecycle thinking. As a result, some theoretical insights are provided and an empirical application of the model to the Metal Products industry of the BRICS (Brazil, Russia, India, China, and South Africa) nations undertaken in an attempt to address some of the methodological and applied measurement challenges. In particular, this allowed the modelling of carbon emissions trends within, and between the BRICS nations and with the Rest-of-the-World over a 20-year period (1992–2011) as well as providing an opportunity to hypothesis on their future carbon emissions performances. Specific analyses of the Metal Product industry showed that demand represents the main driver for the increasing carbon footprint. However, the overall decline in reported carbon footprint was due to improvements in emissions intensity and efficiency gains induced by technology. The study further assesses the effects of imports and economic growth on carbon footprint and discusses the implications of the study to sustainability transition processes in the BRICS nations.

Net trade credit: what are the determinants?

The purpose of this paper is to extend the literature on trade receivables and trade payables by examining the determinants of net trade credit.,To do that, a sample of 67,047 firms in the UK with 443,190 firm year observations is used.,The results are robust to unobserved heterogeneity and industry effects. The evidence suggests that firms with more inventories, market share and are financially distressed invest less in trade credit. Moreover, higher operating cash flow, annual sales growth, export propensity, access to bank credit and larger firms lead to higher investment in trade credit.,Additionally, the paper broadens the scope of the literature by analysing the determinants of net trade credit around the financial crisis and industry competitiveness.

Working Capital Management Practices and Profitability of AIM Listed SMEs

This paper reports the results of an investigation of the effect of Working Capital Management (WCM) practices on profitability of Small and Medium Enterprises (SMEs) listed on the Alternative Investment Market (AIM), from the perspective of financial directors. Specifically, I look at their WCM target level practices, WCM alteration frequency and WCM strategy practices. The analyses are based on questionnaire distributed to 248 AIM listed SMEs. The paper employs OLS regression on responses from 72 managers of AIM listed SMEs. The results show that the WCM practices of AIM listed SMEs managers have an effect on profitability. However, the results show that given the limited resources of SMEs, the main focus of managers should be on the setting of specific target level for WCM so as to increase profitability.

Working Capital Management and Performance of Listed SMEs

This paper reports the results of the effect of working capital management (WCM) on the performance of listed small and medium enterprises (SMEs). The study also examines whether the effect of WCM on performance differs between ‘small’ and ‘medium’ firms. The paper employs panel data regression analysis on a sample of 141 Alternative Investment Market listed SMEs for an eight-year period (2007–2014). The results show that for all SMEs, WCM components (inventory holding period, accounts receivable period, and accounts payable period) have concave relationships with performance. However, when the SMEs are split into ‘small’ and ‘medium’ firms, the results suggest that WCM is relatively more important to the performance of ‘small’ firms than ‘medium’ firms. Overall, the results imply that WCM components affect performance of the listed SMEs. The findings have important implication for policy-makers who prescribe financial assistance mechanisms for SMEs.

Working Capital Management Practices of UK SMEs: The Role of Education and Experience

This paper reports the results of an investigation into the effect of education and work experience possessed by managers on the working capital management practices of Small and Medium Enterprises (SMEs) listed on the Alternative Investment Market (AIM), from the perspective of financial directors. The analyses are based on questionnaire distributed to 248 AIM listed SMEs. The paper employs the T-test, one-way ANOVA and post hoc test on responses from 72 managers of AIM listed SMEs. The results show that managers with the highest qualification and many years of work experience have the ability to confidently managing all aspects of WCM, and therefore have the best WCM practices. Specifically, the results indicate that managers possessing professional qualification are more competent and therefore able to manage all WCM components. Also, managers with 21 years or over of work experience have the best WCM practices.

Net Working Capital, Cash Flow and Performance of UK SMEs

This paper examines the influence of cash flow on the relationship between net working capital and firm performance. The paper employs unbalanced panel data regression analysis on a sample of 6,926 non-financial small and medium enterprises in the United Kingdom for the period from 2004 to 2013. The results indicate a strong concave relationship between net working capital and performance in the absence of cash flow; however, the relationship becomes convex after taking cash flow into consideration. The results further show that firms with cash flow below the sample median exhibit lower investment in working capital but firms with cash flow above the sample median have higher investment in working capital. The results suggest that managers should consider their firms cash flow when determining the appropriate investment to be made in working capital, so as to improve performance. Overall, the results suggest that whilst firms with limited cash flow should strive to reduce investment in working capital, firms with available cash flow should increase investment in working capital in order to improve performance. This current study incorporates the relevance of cash flow in assessing the association between WCM and firm performance.