Interrelation of working capital management and efficiency of the company

Sabina Mammadova1

1Ph.D. Candidate, Azerbaijan State University of Oil and Industry, Baku, Azerbaijan

 Article History

Received: 29 December 2020            Revised:  09 March 2021                 Accepted: 11 March 2021          Available Online: 15 March 2021

Keywords: Efficiency of the company, working capital structure, capital management, financial cycle, liquidity

JEL classification: D24, F21

 Citation: Mammadova, S. (2021). Interrelation of working capital management and efficiency of the company, Review of Socio-Economic Perspectives, Vol 6(1), 13-22.


Effective management of working capital gives the company the opportunity to create its value by reducing the need for additional funding, increasing profitability, improving liquidity, and increasing the efficiency of operations. Working capital acts as a lever for the creation of value and value for its owners. An effective management model of working capital allows a company to gain competitive advantage and increase the well-being of shareholders. The relevance of the study is due to the need for quality management in the short-term aspects of the company's activities to achieve its maximum effectiveness. The purpose of this article is to determine the nature of the relationship between the components of working capital and the effectiveness of the company in the Azerbaijan market. Working capital management is an important aspect of management aimed at increasing the competitiveness of a company and creating value for business owners and key stakeholders in the long run. To achieve long-term goals, the company must be paid and provide a level of profitability, satisfying stakeholders. As part of the study, as an indicator of the quality of working capital, the length of the financial cycle of the company was used, as well as the period of turnover of reserves, accounts payable and accounts receivable. There was also a criterion for the effectiveness of the company - an indicator of return on assets (ROA). As a basis for research, a selection of Azerbaijan small and enterprises of various industries, except for companies involved in the financial sector and the service sector, from 2015 to 2019. The course of the investigation showed that there is a significant reciprocal relationship between the long financial cycle of the company and the effectiveness of its activities. In the period between the turnover of the creditor's indebtedness and the effectiveness of the company's activity, a reciprocal relationship was also identified. With the growth of the period of turnover of receivables, the efficiency of the company's activities falls. The periodic turnover of the company's stocks and the effectiveness of its activities are also reflected in the reciprocal relationship.

E-mail: & ORCID:


Article Type: Original Paper


Baños-Caballero S., García-Teruel P.J., Martínez-Solano P. How does working capital management affect the profitability of Spanish SMEs? Small Business Economics.2012;39(2):517–529. DOI: 1007/s11187–011=9317-8

Baños-Caballero S., García-Teruel P.J., Martínez-Solano P. Working capital management, corporate performance, and financial constraints. Journal of Business Research. 2014;67(3):332–338. DOI: 10.1016/j.jbusres.2013.01.016

Deloof M. Does working capital management affect profitability of Belgian firms? Journal of Business

Finance & Accounting. 2003;30(3–4):573–588. DOI: 10.1111/1468–5957.00008

Ebben J. J., Johnson A. C. Cash conversion cycle management in small firms: Relationships with liquidity, invested capital, and firm performance. Journal of Small Business & Entrepreneurship. 2011;24(3):381– 396. DOI: 10.1080/08276331.2011.10593545

Falope O., Ajilore O. Working Capital Management and Corporate Profitability: Evidence from Panel Data Analysis of Selected Quoted Companies in Nigeria / Research Journal of Business Management. 2009. Vol. 3. N 3. P. 73–84.

García-Teruel J.P., Martinez-Solano P. Effects of working capital management on SME profitability. International Journal of managerial f inance. 2007;3(2):164–177. DOI: 10.1108/17439130710738718

Grablovski B. Financial Management of Inventory / Journal of Small Business Management. 1984. Vol. 22. N 3. P. 59–65.

Jose M., Lancaster C., Stevens J. Corporate Returns and Cash Conversion Cycles / Journal of Economics and Finance. 1996. Vol. 20. N 1. P. 33–46.

Lazaridis I., Tryfonidis D. Relationship between Working Capital Management and Profitability of Listed Companies in the Athens Stock Exchange / Journal of Financial Management and Analysis. 2006. Vol. 19. N 1. P. 26–35.

Lyngstadaas H., Berg T. Working capital management: Evidence from Norway. International Journal of Managerial Finance. 2016;12(3):295–313. DOI: 10.1108/IJMF‑01–2016–0012

Mathuva D. The Influence of Working Capital Components on Corporate Profitability: A Surveys on Kenyan Listed Firms // Research Journal of Business Management. 2010. Vol. 4. N 1. P. 1–11.

Nobanee H., Abdullatif M., Al Hajjar M. Cash conversion cycle and firm’s performance of Japanese firms. Asian Review of Accounting. 2011;19(2):147–156. DOI: 10.1108/13217341111181078

Padachi K. Trends in Working Capital Management and Its Impact on Firms’ Performance: An analysis of Mauritian Small Manufacturing Firms // International Review of Business Research Papers. 2006. Vol. 2. N 2. P. 45–58.

Pais M. A., Gama P. M. Working capital management and SMEs profitability: Portuguese evidence. International Journal of Managerial Financ e. 2015;11(3):341–358. DOI: 10.1108/IJMF‑11–2014–0170

Peel M., Wilson N. Working Capital and Financial Management Practices in the Small Firm Sector /International Small Business Journal. 1996. Vol. 14. N 2. P. 52– 68.

Shin H., Soenen L. Efficiency of Working Capital Management and Corporate Profitability/ Financial Practice and Education. 1998. Vol. 8. N 2. P. 37–45.

Zariyawati M., Annuar M., Taufiq H., Abdul Rahim A. Working Capital Management and Corporate Performance: Case of Malaysia /Journal of Modern Accounting and Auditing. 2009. Vol. 5. N 11. P. 47–54.