This chapter summarize all the main analysis, findings chapter and give future research directions. Based on the results findings the researcher highlight some recommendations for the target populations. Finally, the researcher present the limitations of the study, future research directions. 5.1 Conclusions The object of this study is to examine the impact of working capital management on firms’ profitability. The researcher used quantitative method to test a series of research hypothesis. Then companies were selected a sample of thirteen audited companies which listed in Vietnam stock exchange for period three - year from 2010-2012. Data was collected then analyzed on quantitative basis through SPSS 16.0 software. From this study the research find that, most of Vietnam construction firms have large amounts of cash invested in working capital. Therefore, it can be expected that the way in which working capital managed will have a significant impact on profitability of those firms. The study have found a significant negative relationship between corporate profitability which is measured by Return on Assets and the average period, inventory turnovers in days and cash conversion cycle for a sample of Vietnam construction firms. The negative relationship between accounts receivables and firms’ profitability show that less profitable will pursue a decrease of their accounts receivables in an attempt to reduce their cash gap in the cash conversion cycle. The results suggest that managers can create value for their share holders by reducing the number of day’s account receivable and inventories to realistic minimum level. Moreover, cash conversion cycle that is used as measuring efficiency of working capital management shows that as cash conversion cycle is longer, profitability is smaller. Therefore, the researcher recommend that managers can build firms value by reducing the cash conversion cycle to a reasonable range or mangers can create profits for their firms by handling correctly the cash conversion cycle and keep each different component. 5.2 Recommendations Based on the study results the researcher recommended the following points: •Average collection period have negative relationship with firms’ return on assets. It means that if the average collection period is low, the firms’ profitability will decrease. Hence, companies have to maintain liberal credit or conservative policy so as to minimize bad debt and not to lose customers. •The negative relationship between inventory turnovers in day’s and firms profitability. With higher inventory turnover will have higher costs like storage, carrying, insurance and its hold opportunity costs too. As a result, companies’ manager has to look over the proper ways of inventory control techniques like economic order quantity or others depend upon the nature of materials they hold. •Similar to above, Cash conversion cycle has a negative relationship with firms’ profitability. Therefore, regarding the CCC, the researcher recommended that lowering working capital cycle as a measure of efficient working capital management is the one to be appraised. 5.3 Research limitation and future research directions This researcher tried to meet the gap between the existing literatures but it also has its own limitations and those limitations can be addressed by the researcher in the future. Firstly, This study was delimited in its title to the : “THE IMPACT OF WORKING CAPITAL MANAGEMENT ON CORPORATE PROFITABILITY IN CONSTRUCTION INDUSTRY IN VIETNAM”. Besides, the quality of this study is depending on the genuine information acquired from concerned companies. Hence, reliability of the data was the main problems face in the study and influence its output. Moreover, shortage of latest reference books and literature on the area in Vietnam content. Lastly, the most important factor that limited the study output was shortage of time. There are 11 Joint stock companies were chosen as a sample using simple random sampling method and the study took only three years data starting from year 2010 to 2012. The study limited to the sample of Vietnam construction share companies industry. The results of this study could only generalized to construction firms similar to those that were included in this research. Further, there are a lot of measures of profitability such as Gross operating profits, Return on investment but the researcher used one measure to measure the profitability of a firms is Return on Assets. Hence, if the researcher use other measures of profitability, the results may differ from this study. Therefore, the future researches should investigate generalization of the findings beyond the Vietnam construction sector and not only on share construction firms. Thus, the scope of the further research may be extended to the working components and profitability measures’ including cash, marketable securities and Gross operating profit, Return on Investment.
JEAN MOULIN LYON UNIVERSITY VIETNAM UNIVERSITY OF COMMERCE MASTERS FINANCE AND CONTROL THESIS THE IMPACT OF WORKING CAPITAL MANAGEMENT ON CONSTRUCTION FIRMS’ PROFITABILITY IN VIETNAM Prepared by: Nguyen Thi Ngoc Diep Supervised by: Sophie Bachelard Hanoi 2013 ABSTRACT To start business, first of all we need finance and the success of that business initially depends on management of short term finance is called working capital management The working capital management plays an important role for the firm’s success or failure because it’s effect on firm’s performance and liquidity The effective working capital management is a fundamental part of the overall corporate strategy to create shareholders’ value (Nazir and Afza,2008) A lot of financial managers in the world have researched impact of working capital management on firms’ Profitability across countries to find out how to use working capital effectively and maximize profit With the same topic, this research aims to supply empirical evidences to examine such influence for Vietnamese Companies The study selected a sample of 11 audited construction companies listed in Vietnam Stock Exchange for the period of three years(2010-2012) with total 132 observations Collected data was then analyzed on quantitative The researcher estimated regressions basis by using Pearson’s correlation and Linear regression analysis through SPSS 16.0 software The results of Pearson’s an regression analysis found a significant negative relationship between Receivables Collection Period, Inventory Conversion Period, Average payment period, Cash Conversion Cycle and profitability This study can suggest the impact of working capital management on firm’s performance and highlight how managers affect firm’s profitability by managing working capital efficiently The theoretical contribution of this study is to enrich the existing literature by investigate the impact of working capital management on construction firms’ profitability in Vietnam firms as a developing market TABLE OF CONTENT ABSTRACT TABLE OF CONTENT Chapter INTRODUCTION 1.1 Overview of working capital management 1.2 Problem Statement .6 1.3 Research objective 1.4 Hypotheses of the study .6 1.5 Research method adopted 1.6 Significance of the study .7 1.7 Structure of the study Chapter LITERATURE REVIEW .8 2.1 Theoretical review 2.1.1 Working capital 2.1.2 Working capital management .10 2.1.2.1 Cash management 11 2.1.2.2 Receivable management 11 2.1.2.3 Inventory management .12 2.1.3 Distinction between profit and profitability .13 2.2 Review of empirical studies 13 Chapter 16 DATA AND METHODOLOGY 16 3.1 Data collection 16 3.2 Variables 16 3.3 Research Model 17 3.4 Methodology .18 3.4.1 Descriptive statistics 18 3.4.2 Correlation analysis 19 3.4.3 Regression analysis 19 Chapter 20 RESULTS AND ANALYSIS 20 4.1 Results for summary of descriptive statistic .20 4.2 Test results for CLRM assumption 21 4.2.1 Test results for multicollinearity 21 4.2.2 Test result for significance of the model 22 4.2.3 Results for Pearson’s correlation coefficient 23 4.2.4 Results for multiple regression 25 4.2.4.1 Result of regressing average receivable period as an independent variable : 26 4.2.4.2 Result of regressing inventory turnover as an independent variable : .27 4.2.4.3 Result of regressing average payment period as an independent variable : 28 4.2.4.4 Result of regressing Cash conversion cycle as an independent variable : 29 4.2.4.5 Hypotheses testing 31 CHAPTER 32 CONSCLUSIONS AND RECOMMENDATIONS 32 5.1 Conclusions .32 5.2 Recommendations 32 5.3 Research limitation and future research directions 33 REFERENCES 34 Chapter INTRODUCTION This chapter provides background information on the thesis topic The purpose of this chapter to provide readers with an overview on the research The chapter consists of seven sections: Section 1.1 presents an overview of working capital management as a background of the research Section 1.2 indicates statements of the problems Section 1.3 identifies research objective Section 1.4 presents hypotheses of the study Section 1.5 discuss about research method adopted Section 1.6 shows significance of the study Section 1.7 draws an outline of the study 1.1 Overview of working capital management Working capital is a critical component in the functioning of any business After the initial investment of setting up the factory and installing plant & machinery, the company additionally requires funds to keep its machines working and churning out goods Essentially the company must have funds to buy raw material, to pay wages to workers and to bear other operating expenses required for daily production After operating funds are spent and goods are produced, there is a time-lag before actual sales are realized Even after a sales transaction is concluded, it does not immediately bring in cash for the company as a credit period is often extended to the buyer In a nutshell, a company needs working capital to continuously produce sufficient goods as the actual cash realization of sale proceeds takes place much later after a sale is made In simple word, working capital is that how much in liquid assets that a company has on hand Therefore, working capital management means to take decision for bringing working capital at optimum level Only doing this, working capital management can control working capital efficiently Working capital management is a very important part of corporate finance because it directly affects companies’ liquidity and profitability (Deloof, 2003) Therefore, efficient management of working capital is a fundamental part of the overall corporate strategy to create shareholder value In general, companies try to keep an optimal level of working capital that maximizes their value (Deloof, 2003; Afza & Nazir, 2009) However, preserving liquidity of the firm is an important objective as well The problem is that increasing profits at the cost of liquidity can bring serious problems to the firm Therefore, there must be a tradeoff between these two objectives( liquidity and profitability) One objective should not be at the cost of the other because both have their own importance If firms not care about profit, they can not survive for a long time If firms not care abut liquidity they may face the problem of insolvency or bankruptcy For these reasons managers should give proper consideration for working capital management as it does ultimately affect the profitability of firms Indeed firms may have an optimal In general, working capital management is not only improving financial performance in today’s cash-strapped and uncertain economy, but it is the question of meeting firm’s day to day operation Therefore, it may have both negative and positive impact on firms, profitability which in turn, the shareholders’ wealth has been negative and positive impact Therefore, it is a critical issue to know and understand the impacts of working capital management and its influence on firms’ profitability 1.2 Problem Statement Working capital management plays an important role in any companies because without working capital management, firms’ operation will not run smoothly Working capital management have a significant impact upon both the liquidity and profitability (Shin and Soenen, 1998; Dong and Su, 2010) Therefore, the crucial part of managing working capital is maintaining the required liquidity in day – to day operation to ensure firms running and to meet its obligation (Eljelly,2004) As a result, in order to explain the relationship between working capital management and profitability, many researchers have been carried out in different countries, however, this issue is not attracted to researchers in Vietnam Besides, the researcher find a little studies carried out by searching on internet, books and journals Therefore, their researcher believed that the problem is almost untouched and there is a knowledge gap on the area In its effect most Vietnam company managers thought regarding working capital management is to shorten the cash conversion cycle to increase firms’ profitability However, if firms have higher level of account receivable due the generous trade credit policy, it would result to longer cash conversion cycle In this case, the longer cash conversion cycle will increase profitability and thus, the traditional view of managers can not be applied to all circumstances Hence, lack of proper research study on the area gives a chance for the Vietnam companies’ managers to have limited awareness in relation working capital management with increasing firms’ profitability Therefore, the study try to find out the impact of working capital management on firms’ profitability 1.3 Research objective This research aims to examine whether working capital management can impact on construction firms’ profitability in Vietnam and if so, whether it is positive or negative influence It provides insights to Vietnam Companies about influence of working capital management on firms’ profitability 1.4 Hypotheses of the study The aim of this study is to understand the impact of working capital management on companies’ operating profitability, the following hypotheses that this study try to test: HP1: There is positive relationship between efficient working capital management and firms’ profitability HP2: There is a negative relationship between cash conversion cycle and firms’ profitability HP3: There is a negative relationship between liquidity and firms’ profitability HP4: There is a positive relationship between firm size and firms’ profitability HP5: There is a negative relationship between debt and firms’ profitability 1.5 Research method adopted In this study, a quantitative method is adopted to achieve the main research objective Data were collected that help the researcher examine the influence of working capital management on firms’ profitability in audited financial statements and analysis statements Acceptable data would be entry data of process was analyzed by using the SPSS 16.0 software program Analysis data was implemented to show important relationships of variables in the study 1.6 Significance of the study There are a lot of researchers studied this topic in other countries by using panel data through multiple regressions to show the impacts of working capital components on firms’ profitability However, as I know, very little research has been done in Vietnam This limited evidence in the context of Vietnam along with the importance of working capital management calls for research on their impact on firms’ profitability In light of the above points, the general objective of the study will be to examine the impact of working capital management on the profitability of construction firms in Vietnam Similarly, it benefits the managers and policy makers of those selected companies regarding decision on optimum level of working capital, ways of managing it and overall policies on working capital management Through this study gives clear understanding about the relation between working capital components and corporate profitability Besides, the study helps as a guideline for those who conducts their study on similar topic and it gives brief information for the shareholders, prospective customers and creditors of firms regarding profitability in relation to efficient working capital management and policy Finally, the study benefits the researcher to obtain new knowledge about the problem and give clear picture about the discipline called research 1.7 Structure of the study The thesis is organized as follows: The first chapter is introduction, This chapter provides background information on the thesis topic The second chapter is literature review This chapter provides overview on working capital, working capital management, distinction between profit and profitability of company and the impact of working capital management on the company profitability The third chapter is data and methodology This chapter discusses the data collection, chosen variables and method used to describe and analyze data The fourth chapter is result and analyzing This chapter provides empirical results The fifth chapter is conclusions and recommendation This chapter consists of summary and conclusions for finding, limitations, recommendations for future research Chapter LITERATURE REVIEW The purpose of this chapter is to review the evidence on working capital management and profitability measures of a firm This chapter is arranged into three sections The first section Presents the theoretical review of working capital management, the second section reviews the empirical evidence and the third section present conclusions on the literature review and identifies the knowledge gap that this study attempts to fill in 2.1 Theoretical review 2.1.1 Working capital The term working capital is used for the capital required for day-to-day business activities such as purchasing raw material, expenditure on salaries, wages, rents rates, administration, advertising Working capital refers to funds which are used during an accounting period to generate a current income of a type which is consistent with major purpose of a firm existence Working capital is an excess of current assets over current liabilities In other words, The amount of current assets which is more than current liabilities is known as working capital If current liabilities are nil then, working capital will equal to current assets Working capital shows strength of business in short period of time If a company have some amount in the form of working capital , it means company have liquid assets, with this money company can face every crises position in market To understand working capital it is better to have basic knowledge about various aspect of working capital as table following: To start with, there are two concepts of working capital know as: Gross working capital and Net working capital Gross Working Capital In this concept of working capital, we study gross working capital It presents total value of current assets In other words, it is the sum of total of net working capital and current liabilities It is a quantities concept showing the total amount available for financing the current assets It cannot reveal the true position of the company Net Working Capital It presents excess of current assets over current liabilities Current assets include cash, debtors, stocks and bills receivable Current liabilities include bills payable, accounts payable, expenses payable It indicates the liquidity position of an enterprise i.e the soundness or otherwise of the current financial position This can be presented as: Net working capital = Current assets – Current Liabilities In this equation net working capital may be positive or negative A positive net working capital when current assets exceed current liabilities and A negative net working capital arises when current liabilities exceed current assets Gross working capital indicates firm’s investment and financing of current assets Net working capital, on the other hand, shows the liquidity of a firm As the result, net working capital indicates the financing needs of a firm, both through long-term and shortterm financing sources Working capital is the part of firm’s capital that is used for routine day-to-day business operations In other words, working capital refers to the funds needed by the business to run its operations for one accounting year Working capital reflects the amount of money a firm has at its immediate disposal For more information about working capital refer to tutorial liquidity and working capital analysis Adequate working capital is important for any business operations Working capital financing, however, can be a challenge for a business, especially for a small firm In order to understand the best way to finance working capital, it is important to understand the difference between the two types of working capital: Permanent working capital and Temporary working capital Permanent working capital is the minimum level of current assets required by a firm to carry-on its business operations Permanent working capital is also called fixed working capital Permanent working capital does not depend on the level of production or sales It is similar – in some sense – to fixed assets because of its permanent (fixed) nature Important to note, however, that permanent working capital is not literally fixed: its level can change over time The level of permanent working capital depends on the business cycle as well as the growth of a firm Temporary working capital is the excess of working capital over the permanent working capital Temporary working capital differs from permanent working capital because of its cyclicality As the result, temporary working capital usually requires a different source of financing than permanent working capital While permanent working capital is usually financed through a long-term financing source such as equity capital and debt, temporary working capital is often financed by short-term funds 2.1.2 Working capital management Working capital represents the operating liquidity available to a business firm A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses The management of working capital involves managing inventories, accounts receivable and payable and cash Inadequate working capital can put a company in jeopardy rather quickly due to liquidity problems On the other hand, excessive working capital strains the company finances When there is deficiency of working capital – remedies are a Raise Equity b Sell out Non-current Assets Having Too Much working capital is Bad – This is due to rise in inventories and trade debtors – Problems with Excessive inventories : Obsolescence risk viz., physical deterioration, technical or market obsolescence 10 Chapter RESULTS AND ANALYSIS This chapter present the results and analysis finding on the impact of working capital management on firms’ profitability The results obtained under different methods and techniques are analyzed in the subsequent chapter to address each research hypotheses 4.1 Results for summary of descriptive statistic The primary data sources of this study are collected of financial analysis of financial statements in 11 constructions companies in Vietnam The descriptive statistics are presented for total 132 observations of constructions share companies in Vietnam for period of three years from 2010 to 2012 For both dependent and independent variables value of minimum, maximum, mean and standard deviation are presented on table 4.1 Table 4.1 Descriptive Statistics of Sample companies Descriptive Statistics N ROA CR DR ARD ITD APP CCC SIZE Valid N (listwise) Minimum 132 -2.05000E1 Maximum 16.08000 132 79000 4.45000 132 36000 98000 132 29.20000 7.03380E2 132 1.00000 9.29680E2 132 21.10000 6.61840E2 132 19.10000 1.77007E3 132 25.19232 29.52280 Mean Std Deviation 2.2782576 E0 1.4850758 E0 7047727 1.8220970 E2 2.1410583 E2 1.1323371 E2 3.4708379 E2 2.6949836 E1 4.28862502 67388301 12868961 1.31809748E2 1.58887806E2 98.32096097 3.08846614E2 88287439 132 Source: SPSS output from financial statements of sample companies, 2010-2012 The mean value of net Return on Assets is 2.28 percent of total assets And standard deviation is 4.28 percent The maximum value for return on assets is 16.08 percent while the minimum is -20.5 percent 20 The cash conversion cycle used as proxy to check the efficiency in managing working capital in on average 3.5 days and standard deviation is days The minimum time taken by a company convert its firms activity is 19 days and the maximum time taken by the firm is 1770 days Firms receive payments against sales an average of 182 days and standard deviation is 132 days Minimum time taken to collect cash from receivables is 29 days while the maximum time taken is 703 days It takes an average 214 days to sell inventory with standard deviation of 159 days Here, maximum time taken by a company is 930 days which is a very lager time period to convert inventory sales and the minimum time taken is day Firm wait an average 113 days to pay their purchases with standard deviation of 98 days Here minimum time taken by a company is 14 days and maximum time taken for this purpose is 662 days A traditional measure of liquidity is current ratio The average current ratio for Vietnamese firms is 1.48 with a standard deviation of 0.67 The highest current ratio for a company is 4.45 and the minimum ratio is 0.79 To check the debt financing and its relationship with the profitability the debt ratio The results of descriptive statistics show that the average debt ratio is 0.74 with standard deviation of 0.12 The maximum debt financing used by a company is 0.98 is rather high ratio while the minimum level of debt ratio is 0.36 Finally, to check the size of firm and its relationship with profitability, natural logarithm of sales is used as a control variable The mean value of log sales is 27 with standard deviation of 0.88 The maximum and minimum value of log of sales for company in a year is 30 and 15 4.2 Test results for CLRM assumption 4.2.1 Test results for multicollinearity By using Partial pair wise correlation to examine multicollinearity table 4.2, the result show that: The pair wise correlations between variables are lays between +/-1 Hence, in terms of partial pair wise correlation between variables majority of correlation are on between -0.235 and 0.998 Likewise, the minimum correlation of -0.235 is between debt ratio and current ratio while the maximum correlation of 0.78 is between average payment period and cash conversion cycle It is not a serious problem when compared to standard more than 80 percent coefficient(Gujarati, 2004) 21 Table 4.2 Partial pair wise correlation between variables Correlations Control Variables ROA CR Correlation CR DR ITD CCC SIZE APP 1.000 Significance (2-tailed) df DR ARD Correlation -.235 1.000 Significance (2-tailed) 007 df 129 -.152 -.118 1.000 Significance (2-tailed) 084 180 df 129 129 Correlation 117 121 064 1.000 Significance (2-tailed) 183 167 468 df 129 129 129 074 000 756 253 1.000 Significance (2-tailed) 398 998 000 004 df 129 129 129 129 -.099 096 587 128 659 1.000 Significance (2-tailed) 258 276 000 146 000 df 129 129 129 129 129 -.206 159 741 050 781 580 1.000 Significance (2-tailed) 018 069 000 572 000 000 df 129 129 129 129 129 129 ARD Correlation ITD CCC Correlation SIZE Correlation APP Correlation Source: SPSS output from financial statements of sample companies, 2010-2012 4.2.2 Test result for significance of the model In this table 4.3 we can see, at a significance level of 0.01 the regression model predicts the outcome variables Regarding the significance of the relationship between dependent variables and all the other independent variables are explained by 6.7 given on Fstatistics 22 The model is tested by ANOVA and model summary tale ANOVA of linear regression indicated that the regression model predicts the outcome variable significantly good enough in predicting the outcome variable Table 4.3 ANOVA linear regression for significant of the model ANOVAb Model Sum of Squares Regression df Mean Square 663.198 94.743 Residual 1746.194 124 2409.392 Sig 6.728 000a 14.082 Total F 131 a Predictors: (Constant), siz, cr, itd, dr, app, ard, ccc b Dependent Variable: roa Source: SPSS output from financial statements of sample companies, 2010-2012 Table 4.4 shows R is 52.5 percent while R2 and adjusted R2 are 27.5 percent and 23.4 percent Similarly, statistics result for Durbin- Watson is 0.882 R2 is 27.5 percent present that 27.5 Percent explained by its independent variables which is large Therefore, the regression model used for the study is highly explained to overall model signifying the study was note lost very important variables that effect the study output Table 4.4 Model summary of linear regression Model Summaryb Adjusted R Model R R Square 525a 275 Std Error of the Square Estimate 234 3.75262729 Durbin-Watson 882 a Predictors: (Constant), siz, cr, itd dr, app, ard, ccc b Dependent Variable: roa Source: SPSS output from financial statements of sample companies, 2010-2012 4.2.3 Results for Pearson’s correlation coefficient From the result in table 4.5 the researcher started to analysis of correlation results between the size and Return on Assets The result of correlation show a positive coefficient 0.407 and with p-value of 0.000 It presented that the result is highly significant at α = percent significant level and that if size of company increases it will have a positive impact on the profitability and increase it 23 The correlation result between current ratio and Return on Assets has a significant positive relationship with profitability measure is 0.244 and p-value is 0.005 and the result is significant at α = 0.01 percent It has significant Another ratio measures liquidity of the firm is debt ratio The Pearson Correlation shows the negative relationship with Return on Assets and coefficient is -0.029 and p-value is 0.74 However, the P- value is not significant at all One more correlation result has negative relationship with Return on Asset is inventory days is -0.049 and p-value is 0.577 It is also not significant Correlation results between cash conversion cycle, average receivables days, average payables days and Return on Assets have a positive coefficient with profitability of firms are 0.121; 0.079; 0.065 and p-value is 0.168, 0.37, 0.458 The p-value are not significant Table 4.5 Result for Pearson’s correlation coefficient 24 Correlations ROA ROA Pearson Correlation CR DR ARD ITD CCC SIZE APP Sig (2-tailed) N CR Pearson Correlation 132 244** Sig (2-tailed) N 007 132 132 132 Pearson Correlation 079 -.127 -.120 370 146 172 132 132 132 132 -.049 101 123 060 577 247 161 496 N 132 132 132 132 132 Pearson Correlation 121 101 -.003 757** 245** Sig (2-tailed) 168 249 970 000 005 N 132 132 132 132 132 132 407** 011 076 567** 097 647** Sig (2-tailed) 000 898 388 000 271 000 N 132 132 132 132 132 132 132 Pearson Correlation 065 -.183* 157 742** 046 782** 556** Sig (2-tailed) 458 036 072 000 597 000 000 N APP 740 Sig (2-tailed) SIZE -.235** N CCC -.029 Sig (2-tailed) ITD 132 N ARD 132 Sig (2-tailed) DR 005 132 132 132 132 132 132 132 Pearson Correlation Pearson Correlation Pearson Correlation 1 1 ** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed) Source: SPSS output from financial statements of sample companies, 2010-2012 4.2.4 Results for multiple regression 25 1 132 Regarding separate regression for each independent variable to examine the impacts on firms’ profitability 4.2.4.1 Result of regressing average receivable period as an independent variable : ROA = -65.254 – 0.006 (ARD) + 1.296 (CR) – 1.458 (DR) + 2.515(Size) From the table 4.6: Average collection period showed negative coefficient -0.006 with p-value of 0.049 which is significant at α = percent It means that the increase or decrease in account receivables will significantly affect profitability of the firm Hence, when collection periods increases, bad debt increases, lead to profitability will fall down and vice versa The regression result for current ratio has positive coefficient of 1.3 with p-value of 0.014 It means that the coefficient is significant at α = percent If there is an increase in current ratio it will lead to increase in profitability of firm Debt ratio has positive coefficient of 1.5 with p-value of 0.595 at significant at α = percent This shows that it is not significant Logarithm size has positive coefficient of 2.5 with p-value of 0.000 at significant at α = percent It shows a significant positive relationship with profitability which means that larger size firms have more profitability compared to firms of smaller size Besides R square and Adjusted R squared are 24.6 percent and 22.3 percent Table 4.6 Result of multiple regression for model Model Summaryb Adjusted R Model R Std Error of the Square Estimate R Square 496a 246 223 3.78118258 a Predictors: (Constant), siz, cr, dr, Ard b Dependent Variable: roa 26 Durbin-Watson 854 Coefficientsa Standardized Unstandardized Coefficients Model B (Constant) t Sig Coefficients Std Error Beta -65.254 11.953 ARD -.006 003 CR 1.296 DR 000 -.194 -1.986 049 517 204 2.505 014 -1.458 2.734 -.044 -.533 595 2.515 SIZE -5.459 467 518 5.387 000 a Dependent Variable: roa Source: PSS output from financial Statements of sample companies 2010-2012 4.2.4.2 Result of regressing inventory turnover as an independent variable : ROA = -53.986 – 0.003 (ITD) + 1.621 (CR) + 0.454 (DR) + 2.011(Size) Table 4.7 Result of multiple regression for model Model Summaryb Adjusted R Model R Std Error of the Square Estimate R Square 486a 236 212 3.80711657 a Predictors: (Constant), size, cr, itd, dr b Dependent Variable: roa 27 Durbin-Watson 884 Coefficientsa Standardized Unstandardized Coefficients Model B (Constant) Coefficients Std Error -53.986 10.283 ITD -.003 002 CR 1.621 DR Beta SIZE -5.250 000 -.116 -1.471 144 513 255 3.163 002 454 2.696 014 169 866 2.011 379 414 5.302 000 a Dependent Variable: roa Source: SPSS output from financial statements of sample companies, 2010-2012 From the table 4.8 shows the results: The intercept C has a value of -53.986 and also has highly significant Inventory turnover indicates negative coefficient -0.03 with p-value of 0.1 which is significant at α = 10 percent It means that the increase or decrease in inventory turnover will significantly affect profitability of the firm The negative relationship between average payment period and profitability means that if the inventory takes more time to sell, it will impact on profitability The regression result for current ratio has positive coefficient of 1.6 with p-value of 0.002 It means that the coefficient is significant at α = percent If there is an increase in current ratio it will lead to increase in profitability of firm Debt ratio has positive coefficient of 0.454 with p-value of 0.866 at significant at α = percent This shows that it is not significant Logarithm size has positive coefficient of 2.011 with p-value of 0.000 at significant at α = It shows a significant positive relationship with profitability which means that larger size firms have more profitability compared to firms of smaller size Besides R square and Adjusted R squared are 23.6 percent and 21.2 percent is rather high 4.2.4.3 Result of regressing average payment period as an independent variable : ROA = -64.760 – 0.008 (APP) + 1.328 (CR) – 0.322 (DR) + 2.438(Size) From the table 4.8 shows result: Average payables days showed negative coefficient -0.08 with p-value of 0.067 which is significant at α = 10 percent It means that the increase or decrease in account payables will significantly affect profitability of the firm The negative relationship between 28 average payment period and profitability show that the less profitability firms wait longer to pay the bills The regression result for current ratio has positive coefficient of 1.3 with p-value of 0.011 It means that the coefficient is significant at α = percent If there is an increase in current ratio it will lead to increase in profitability of firm Debt ratio has positive coefficient of 0.322 with p-value of 0.904 at significant at α = percent This shows that it is not significant Logarithm size has positive coefficient of 2.44 with p-value of 0.000 at significant at α = It shows a significant positive relationship with profitability which means that larger size firms have more profitability compared to firms of smaller size Besides R square and Adjusted R squared are 24.3 percent and 22 percent is rather high Table 4.8 Result of multiple regression for model Model Summaryb Adjusted R Model R Square Estimate R Square 493a Std Error of the 243 220 Durbin-Watson 3.78877394 862 a Predictors: (Constant), app, dr, cr, size b Dependent Variable: roa Coefficientsa Standardized Unstandardized Coefficients Model B (Constant) Coefficients Std Error -64.760 -.008 004 CR 1.328 DR SIZE Sig Beta 12.074 APP t -5.364 000 -.177 -1.849 067 516 209 2.571 011 322 2.666 010 121 904 2.438 455 502 5.355 000 a Dependent Variable: roa Source: SPSS output from financial Statements of sample companies 2010-2012 4.2.4.4 Result of regressing Cash conversion cycle as an independent variable : ROA = -75.968 - 0.004 (CCC) + 1.68 (CR) – 0.429 (DR) + 2.874(Size) From the table 4.9: 29 Cash conversion cycle showed negative coefficient -0.004 with p-value of 0.005 which is significant at α = percent It means that the increase or decrease in cash conversion cycle will significantly affect profitability of the firm The regression result for current ratio has positive coefficient of 1.68 with p-value of 0.01 It means that the coefficient is significant at α = percent If there is an increase in current ratio it will lead to increase in profitability of firm Debt ratio has positive coefficient of -0.429 with p-value of 0.87 at significant at α = percent This shows that it is not significant Logarithm size has positive coefficient of 2.87 with p-value of 0.000 at significant at α = percent It shows a significant positive relationship with profitability which means that larger size firms have more profitability compared to firms of smaller size Besides R square and Adjusted R squared are 27.1 percent and 24.5 percent Table 4.9 Result of multiple regression for model Model Summaryb Adjusted R Model R Square Estimate R Square 520a Std Error of the 271 248 Durbin-Watson 3.71971945 886 a Predictors: (Constant), siz, cr, dr, ccc b Dependent Variable: roa Coefficientsa Standardized Unstandardized Coefficients Model B (Constant) Coefficients Std Error -75.968 1.680 499 DR -.429 CCC SIZE Sig Beta 12.838 CR t -5.917 000 264 3.363 001 2.609 -.013 -.165 870 -.004 001 -.289 -2.882 005 2.874 486 592 5.915 000 a Dependent Variable: roa Source: SPSS output from financial Statements of sample companies 2010-2012 30 4.2.4.5 Hypotheses testing Regarding the study hypotheses the researcher concluded the following points: First hypotheses (HP1): shows the efficient working capital management is significantly affects profitability of firms and positively related is the one to be accepted because analysis section supported this hypothesis that managing average collection period, inventory turnover and cash conversion cycle efficiently lead to increase profitability Second hypotheses (H2): There is a negative relationship between cash conversion cycle and firms’ profitability also accepted based on the independent regression result of cash conversion cycle shows that it is negative relationship with firms’ profitability and pvalue í significant Third hypotheses (HP3): There is a negative relationship between liquidity and firms’ profitability is accepted And the relationship between current ratio and profitability is strongly negative relation Fourth hypotheses (HP4): There is a positive relationship between firm size and firms’ profitability is also accepted From the regression result of models show that size has positive relationship with firm’s profitability with high significant However, fifth hypotheses (HP5): There is a negative relationship between debt and firms’ profitability is not accepted In those the regression result of models show that debt ratio have no relationship with profitability 31 CHAPTER CONSCLUSIONS AND RECOMMENDATIONS This chapter summarize all the main analysis, findings chapter and give future research directions Based on the results findings the researcher highlight some recommendations for the target populations Finally, the researcher present the limitations of the study, future research directions 5.1 Conclusions The object of this study is to examine the impact of working capital management on firms’ profitability The researcher used quantitative method to test a series of research hypothesis Then companies were selected a sample of thirteen audited companies which listed in Vietnam stock exchange for period three - year from 2010-2012 Data was collected then analyzed on quantitative basis through SPSS 16.0 software From this study the research find that, most of Vietnam construction firms have large amounts of cash invested in working capital Therefore, it can be expected that the way in which working capital managed will have a significant impact on profitability of those firms The study have found a significant negative relationship between corporate profitability which is measured by Return on Assets and the average period, inventory turnovers in days and cash conversion cycle for a sample of Vietnam construction firms The negative relationship between accounts receivables and firms’ profitability show that less profitable will pursue a decrease of their accounts receivables in an attempt to reduce their cash gap in the cash conversion cycle The results suggest that managers can create value for their share holders by reducing the number of day’s account receivable and inventories to realistic minimum level Moreover, cash conversion cycle that is used as measuring efficiency of working capital management shows that as cash conversion cycle is longer, profitability is smaller Therefore, the researcher recommend that managers can build firms value by reducing the cash conversion cycle to a reasonable range or mangers can create profits for their firms by handling correctly the cash conversion cycle and keep each different component 5.2 Recommendations Based on the study results the researcher recommended the following points: • Average collection period have negative relationship with firms’ return on assets It means that if the average collection period is low, the firms’ profitability will decrease Hence, companies have to maintain liberal credit or conservative policy so as to minimize bad debt and not to lose customers • The negative relationship between inventory turnovers in day’s and firms profitability With higher inventory turnover will have higher costs like storage, carrying, insurance and its hold opportunity costs too As a result, companies’ manager has to look over the proper ways of inventory control techniques like economic order quantity or others depend upon the nature of materials they hold 32 • Similar to above, Cash conversion cycle has a negative relationship with firms’ profitability Therefore, regarding the CCC, the researcher recommended that lowering working capital cycle as a measure of efficient working capital management is the one to be appraised 5.3 Research limitation and future research directions This researcher tried to meet the gap between the existing literatures but it also has its own limitations and those limitations can be addressed by the researcher in the future Firstly, This study was delimited in its title to the : “THE IMPACT OF WORKING CAPITAL MANAGEMENT ON CORPORATE PROFITABILITY IN CONSTRUCTION INDUSTRY IN VIETNAM” Besides, the quality of this study is depending on the genuine information acquired from concerned companies Hence, reliability of the data was the main problems face in the study and influence its output Moreover, shortage of latest reference books and literature on the area in Vietnam content Lastly, the most important factor that limited the study output was shortage of time There are 11 Joint stock companies were chosen as a sample using simple random sampling method and the study took only three years data starting from year 2010 to 2012 The study limited to the sample of Vietnam construction share companies industry The results of this study could only generalized to construction firms similar to those that were included in this research Further, there are a lot of measures of profitability such as Gross operating profits, Return on investment but the researcher used one measure to measure the profitability of a firms is Return on Assets Hence, if the researcher use other measures of profitability, the results may differ from this study Therefore, the future researches should investigate generalization of the findings beyond the Vietnam construction sector and not only on share construction firms Thus, the scope of the further research may be extended to the working components and profitability measures’ including cash, marketable securities and Gross operating profit, Return on Investment 33 REFERENCES Shin HH, Soenen L (1998), “Efficiency of working capital management and corporate profitability”,Financial Practice & 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Besides, the quality of this study is depending on the genuine