This chapter will explain the outcomes of the data analysis (descriptive and regression) which was conducted for this research. A discussion based on the results of each of the hypothesis testing is described and the acceptance or the rejection of the hypothesis is discussed as well. The objectives of study are repeated to be described in a more in depth manner. Besides that, the implications to the research will be depicted as well as the implications to individuals, society, companies and regulators. Additionally, limitations of this study are also included in this chapter. Suggestions and recommendations for future similar studies is the last part of Chapter 5.
Summary
The regression analysis combines both time-series and cross-sectional observations for estimation. This is to better identify and measure effects that are simply not easy to detect if the analysis is done in a pure time-series or pure cross-section data. Besides that, variables can be precisely measured and biases due to aggregation over firms or individuals are eradicated.
From the tables enclosed in the previous chapter, it was shown that variable that significantly affects profitability measured by ROA is the Average Collection Period with probability less than 0.1 (10%). Hence, it is proven that, the relationship of all the independent variables with the profitability is consistent with the literature review and research objectives, have effects on the companies profitability.
Objective 1 : To ascertain the relationship between working capital management
and profitability of trading/services companies listed in the Bursa
Malaysia Main Board.
Findings : The relationship between Average Collection Period, Inventory Turnover in Days and Average Payment Period and Return on Assets is a negative correlation relationship.
The results indicate that the coefficient of ACP is negative and highly significant to ROA. It implies that the decrease in ACP can lead to the significant increase in ROA, and vice versa. As for ITID and APP, their adverse relationship with ROA is not as significant. This could mean that it requires big changes in the two independent variables to significantly change the profitability of companies.
Objective 2 : To find out the effects of Average Collection Period on profitability.
Findings : If companies are able to encourage their customers to pay earlier, and shorten the ACP, the company is able to achieve better profits level.
This is due to the significant negative relationship between Average Collection Period and Return on Assets. This is in view that the shorter the time taken to collect payments from customer, the larger is the firm's profitability. This could be done if companies reduce the credit period granted to their customers.
Objective 3 : To find out the effects of Inventory Turnover in Days on profitability.
Findings : It can be interpreted that if the inventory takes more time to sell, it will
negatively affect profitability.
This adverse relationship happens due to the duration of storage of inventory. If the inventory is stored too long before selling, companies are actually putting their capital into investing in the inventory itself, rather than placing their capital into other more fruitful investments.
Objective 4 : To find out the effects of Average Payment Period on profitability.
Findings : Profitability has an opposed relationship with the average payment period and the probability is the highest compared to the other two independent variables.
This is an indication that lesser profitable companies usually attempt a longer period of time to fulfill their debt obligations. Businesses with lower APP can actually use their excess cash to put into other source of investment, instead of being tied up to the accounts payable.
On the basis of this research, the results can be further strengthened that if firms are able to better manage their working capital, which is the current assets and current liabilities, in efficient ways, this will ultimately increase the firms' profitability. Companies can achieve maximum level of corporate profitability if they are able to collect payments from customers earlier, keeping inventory in stocks for lesser time period and paying their suppliers prior to the due date.
Implications
After conducting this research, it is found that this research is able to benefit all walks of life, be it individuals, companies or government. Its contribution to these different parties could increase the level of productivity of the country, if the problem is being tackled at its source.
For individuals, future researchers or investors could imply the methods or results of this study for their benefits. Researchers can identify that there is a negative relationship between the dependent and independent variables. They would be able to extract the benefits the data analysis and may further improve their own studies. This could be act as a guideline for future researchers whom are interested to conduct similar project on other types of variables or market segment. As for the investors, they can identify which company to invest in based on the financial data extracted to compute the firms' profitability. They will be able to determine which firm has the most efficient management of working capital which will affect the profitability positively. With proper working capital management, the company could help investors to increase their investment wealth. Along with other implications of this research to individuals, the research can also create awareness of the importance of working capital management to the society, in line with the objective of research
For companies, the higher management can gain valuable insights on how to further improve and increase the capability to generate more profits than before. By identifying the key components of working capital management, the management is able to take this opportunity to improvise and turn the company around. It is known that there is a negative relationship between the Average Collection Period, Inventory Turnover and Average Payment Period with Return on Assets. Hence, by reducing the three independent variables, the company could increase its profitability by the increase in Return on Assets. With knowledge on working capital management, companies can also efficiently and effectively control their sources of finance. Value can be created to shareholders as the firms' profits increase.
As for the regulators or government, investments can be brought into the international level if there is a better understanding in the working capital management in other countries. Moreover, regulators, such as financial institutions are currently facing a crisis associated with the repayment of loans issued to finance businesses. By making working capital management researches as reference, they will be able to tell that companies tend to have an imbalance of assets and liabilities which weakened their financial obligations. Besides that, the government is able to observe the performance of companies in the view of working capital. As cash conversion cycle reduces, the profitability, measured by Return on Assets, would increase. This understanding can help the government look into ways to assist in the improvement of local firms, which in turn could affect the country's level of performance. The regulators could also introduce better strategic planning to deal with the efficiency of working capital management.
Limitations
There are several potential limitations throughout this study. Firstly, the results of the data analysis computed earlier may not be accurate if they are generalized to represent all the sector indices of companies in Malaysia. The results acquired were only calculated from the Main Board Trading and Services companies from year 2001 till 2007. Secondly, financial information gathering is quite problematic as the information found in the Datastream or the Internet is not sufficient and complete. Only partial information is declared and this does not assist the collection of financial data required. Thirdly, there is a lack of source for data collection. There are only the Datastream database and the companies' websites. It is difficult to obtain more accurate and valid information in hand.
Recommendations
Suggestions and recommendations for future researches are essential in order to produce valuable findings. Further researches can be conducted on the same topic, but with different companies sector. For instance, studies can be conducted on the responsiveness of working capital management towards the profitability of Construction or Mining sector in Malaysia. Individuals who would like to further conduct research on this topic could also extend the years of sample or increase its sample size, which is sufficient enough to produce a more accurate analysis for their studies and provide a strong basis of generalization. The scope of future research could also include other components of working capital management, such as cash or marketable securities. Future researches of working capital management can also be done between different countries or various sectors to compare its effectiveness towards their own profitability.
Conclusion
This chapter will end the research project of identifying the relationship between working capital management and profitability of companies in Malaysia. Sample was taken from seventy-seven companies listed in the Main Board Trading and Services sector. Results of descriptive statistics and regression analysis had shown that there is a negative relationship between the dependent and independent variables. Detailed explanation on the results was discussed to further enhance the understanding the effects of effective working capital management. Implications and limitations of this study are depicted to act as a guideline to the society to apply the usefulness of working capital. Recommendations were suggested to ensure the betterment of quality of future researches.
