Impact of Working Capital Management on Firms Performance

Abstract

Working capital management is one of the most important financial decisions in the company. Optimal working capital management will increase company’s value. The main goal of this study is to evaluate the relationship between working capital management and company’s performance. In order to measure company’s performance, return on equity (ROE), rate of return on assets (ROA) and ratio of market value to book value of the company (P/B) have been used. Analyses were done using 56 companies active in Tehran stock exchange during 2003-2007. Results of the study showed that there is a positive and significant relation between working capital management and return on equity, between working capital management and rate of return on assets, between working capital management and ratio of market value to book value of the company.

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