The Impact of Working Capital Management on Corporate’s Performance: Evidence from Egypt

Financial management has two main objectives profit and wealth maximization, well organized management of WC components should contribute to the achievement of these objectives. This study clarified the factors which affect WCM, which consequently will affect the business health as a whole and this will influence corporate ’performance and its corporate value. The study will examine the relation between firms profitability and its corporate value by applying panel data analysis on16 companies registered in the Egyptian stock market during the period from 2013 to 2017.The performance of companies is measured through profitability using return on assets (ROA) and firms value were measured by Tobin’s Q (TQ) ratio. The working capital management was measured by using current assets ratio (CAR), quick ratio (QR) and cash ratio (CR).


Introduction
WCM is essential for corporate's successful outcome or failure as its components affect firms performance through liquidity and profitability and it shows the share of the corporate's capital which is needed for funding short term property, to meet the daily operations. That's why it is necessary to manage working capital effectively, the main aim of WCM is to achieve an excellent balance between the components of working capital and is considered as a vital part of the firms policy. One of the most common measure of the WCM is the cash conversion cycle which is the time delay between buying raw substances or rendering of services and receiving cash from the sale of goods or services provided. As this period increased the need for investment will increase and in turn profitability will decrease and as profitability is one of the measures of performance this means that CCC can has a gloomy impact on the corporate performance. In this study researchers are going to measure corporate performance by measuring profitability using ROA(return on assets )and liquidity using quick ratio, current ratio and cash ratio and measuring firms value using Tobin Q ratio.
Financial managers should be aware about how to make efficient investment decision related to working capital which will leads to reducing external financing by increasing cash flow and affect corporates growth. Working capital management focused on two factors namely, current property held by the firm and the type of property and the methods by which these assets are financed. This takes much of the finance managers' time to take financial decisions.
As maximizing the value of the firm is one of the main goals managers aim to achieve and it can be achieved through maximizing profit, many practical and theoretical researches have been held to assess the factors which leads to maximizing corporate value. Among these factors is the degree of the net working capital, like the extent of cash held up in A/R, inventories, and the quick settlement of accounts payable, and operational cash balances.
budgeting and third decision is about managing WC.
WC is a financial measure for running liquidity accessible in a business which will affect firms profitability, and both liquidity and profitability are indicators of corporates performance. Also it is necessary corporates to manage working capital efficiently to be able to face global competition. Because the aim of managing WC is to make sure that the company has the ability to resume its operation and that it has sufficient cash flow to satisfy both maturing short term debt and future running expenses.
The main purpose of our study is to recognize the factors which influence WCM by companies listed on Egyptian stock market as it affects corporate's profitability, risk and consequently its value.

Literature Review
There are preceding studies related to the relation between working capital management components, shareholders wealth and firm's profitability and liquidity provides theoretical arguments to show the impact effective management of working capital on the mentioned independent variables which will consequently affect firms performance. There are many studies on this subject as well. Through Literature review, the study found the following: 1-The firms profit was negatively affected by average collection period, inventory turnover in days, average payment period and CCC. 2-Corporates value was positively affected both receivables conversion period and inventory conversion period. 3-Sales growth can lead to an increase in corporate's profitability. 4-ROA was negatively affected by inventory turnover, cash conversion cycle and ROE was negatively affected by average payment period while the average collection period affects positively ROE. 5-Decreasing the cash conversion cycle will help in achieving the goal of profit maximization in the firm which in turn will increase the market value.

Study Problem
The amounts of assets invested in working capital are usually high compared to the amount of total property so it is important to use these quantities efficiently. The effects of WCM on firms performance has been a focal point of great number of researches among long periods. The researches have focused on large corporates working in developed economies. While in developing countries researches concentrating on the relation between managing WC components effectively and the corporate's performance are limited.
Profitability and liquidity are two main indicators of firms' performance but there is a tradeoff between both of them, one of the main reasons which compromise between profitability and liquidity is managing the components of WC efficiently. Improving the performance of firms in the Egyptian economy will affect positively the overall performance of the economy which is considered as a tool for achieving the sustainable development as an aim of the Egyptian plan 20-30.
So the problem can be summarized in the following questions: ijbm.ccsenet.org International Journal of Business and Management Vol. 15, No. 6; What is the relation between WCM components and corporates performance?
What is the effect of working capital components which is measured by cash ratio, current ratio and quick ratio on the performance indicators like ROA and corporate's value which is measured by Tobin's Q ratio?

Study Hypotheses
According to the study problem, the Study has two Hypotheses which are: 1-There is significant impact of WCM components on ROA.
2-There is significant impact of WCM components on Tobin's Q.

Variables
The study hypotheses focused on the effect of managing WC components which is represented by dependent variables cash ratio, quick ratio and current ratio on the firms value which is represented by independent variables ROA and Tobin's Q.

Dependent variables:
Tobin Q is used as to measure the market value of the corporates. It is measured as market value of equity plus book value of liability divided by total asset ROA is used as for financial performance indicator which is a ratio of Earning before Interest and Tax and Total Asset.

Independent variables:
Current ratio: Is used to determine the firm's liquidity by comparing the current liabilities excluding inventory.
Quick ratio: is used to identify corporates liquidity through comparing the total amount of cash and cash equivalent to the amount of current liabilities.
Cash ratio: is used to determine the firm's liquidity by determining the amount of cash and short term equivalents a company has over current liabilities.

Factors Which Affect Working Capital Components and How It can Affect the Corporate's Performance
The goal of the study is examining the effect of working Capital Management on firms Performance, clarifying the factors which affect managing WC effectively and Identifying the actual performance in terms of the corporates market value (Tobin Q).
The primary financial goal of the firm is not only creating corporate value but also improving performance and maximizing the value of the company.
WCM with planning current assets and current liabilities to reduce the risk of insufficiency to face due dates of short term liabilities and avoid unnecessary investment in these assets which means it affects both liquidity and profitability of the firm. This can enhance the firm's ability of reducing risk and improving performance. The following section will focus on the factors determining working capital.

Determinants of Working Capital Management
There are many factors affecting managing working capital efficiently which include the following: The nature of business, extent of operation production cycle, business cycle, seasonality and production strategy, credit policy, growth and expansion, increase in price level, operating efficiency, availability of raw materials, depreciation policy, taxation, dividend policy and detention policy. Here in our study we will focus on analyzing the items needed to calculate quick ratio, current ratio and cash ratio which are inventory, current assets, current liabilities and cash as they will be used as quantitative indicators for measuring the effect of WCM components on corporate's performance.

Inventory Management
Inventory management focused on managing operations related to the circulation of inventory in and out of the company. Inventory includes Supplies, Raw materials, work-in-process and finished goods. These components of inventory are crucial for all business operations, regarding account receivables, levels of inventories relies greatly on sales, whereas receivables expansion after sales have been done, inventory must be purchased ahead of sales. To manage inventory effectively financial managers should coordinate between sales, purchasing and Production. ijbm.ccsenet.org International Journal of Business and Management Vol. 15, No. 6; Keeping too little inventory level will increase ordering cost and the corporate can bypass profitable sales which will decrease goodwill and in turn lower upcoming sales. Thus it is essential to keep sufficient inventories on hand to face customer demands, and decreases the cost of goods sold and rises their net profit margin. Inventory policy has been seen as an essential component of WC which in turn will affect firm's profitability.

Account Receivables
Account receivables "makes up a considerable part of the corporate's assets, they literally formed of 25.97 percent of a typical corporate asset. (Martin, Petty, Keown, & Scott, 1991). Because of their immensity any variations in their levels will influence profitability." The amount of investment in account receivables is affected by cash management, level of sales and the credit and collection policies.

Cash
Cash management focused on minimizing the firm's risk of insolvency. Working capital aimed to reduce the time between cash expenses on material and receipt of cash sales. The level of sales also identifies the size of investment in A/R that is, the more sales, the larger the account receivables. So if the corporate has seasonal and constant growth in sales, the level of A/R will be maximized.

Working Capital Management and Firm Performance
Generally working capital is measured by identifying the productiveness of the corporate's investment in the components of working capital. This is done by comparing the firm's sales, gross profits and operating income to cash, A/R, A/P and inventories are to determine the relation between efficient WCM and firms' profitability. And profitability of the firm is considered as one of the indicators of corporate performance.
Another indicator for corporate performance is the liquidity of the firm the amount of current assets which is financed from long-term funds is called WC. The gross WC and net working capital are described as total current assets and excess of current assets over current liabilities respectively. So That's why the study will rely on examining the relation between the cash ratio, current ratio and Tobin Q and the corporate value of firms registered in the Egyptian stock market in the span from 2013 till 2017.
Previous studies found that the investment in WC and firm performance is related positively at low levels of WC and negatively at higher levels. A higher speculation in trade credit and inventories may increase the firm performance for several causes because greater inventories can decrease supply costs and price variations and prevent interruptions in the production process and loss of business due to insuffiency of products. Also allow companies to furnish preferable service for their clients and avoid high production costs resulting from high fluctuations in production (Schiff & Lieber, 1974). But sometimes investment in WC negatively affects firms because of the following reasons: 1-Increasing investment in WC will lead to greater capital needs by the firm.
2-Increasing the level of stock will increase costs of warehouse rent, insurance and security.
3-Firms which increase investment in working capital will face more interest expenses and this will increase credit risk.
And this means that managing working capital efficiently will affect firms performance because working capital should be kept at certain level to maintain optimal balance to achieve the best results because exceeding this level may affect performance negatively due to previously mentioned reasons.
The following figure shows the relation between the variables of the study ijbm.ccsen

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Conclusion and Recommendation
The aim of our study was to assess the impact of WCM on the firms' performance. The study sample data was 16 manufacturing companies listed in the Egyptian stock exchange market. The study used the ROA and Tobin Q ratio as indicators for firms performance and to measure the WCM used the cash ratio, quick ratio and current ratio.
From the previous studies it was clear that there is a relationship between managing the different components of WC efficiently and firms profitability, liquidity which are indicators of the firm performance. And our research will continue after the previous study using panel data regression to assess the effect of managing working capital efficiently on the firms performance by using the cash ratio, current ratio, quick ratio and the Tobin's Q ratio. The study found according to the statistical results that there is positive relation between cash ratio, current ratio with the ROA and quick ratio with the Tobin's Q ratio. These results are in accordance with that of Wasantha Perera (2018)  Finally managers should take actions which allow them to efficiently manage working capital components to magnify its impact on improving the financial performance and stock prices of corporates which in turn will increase the shareholders wealth and lead to increasing the sustainable growth of firms by helping companies to obtain internal funds and this is compatible with the Egyptian future development plan of 2030.