Working Capital Management Market Valuat PDF

_____________________________________________________
UNIVERSITI TEKNOLOGI MARA

SAMARAHAN CAMPUS
FACULTY OF BUSINESS AND MANAGEMENT
_____________________________________________________
BACHELOR’S OF BUSINESS ADMINSTRATIONS (HONS.)

FINANCE
BM242
RESEARCH PROPOSAL
WORKING CAPITAL MANAGEMENT:

THE MARKET VALUATIONS AND PROFITABILITIES
ABG. MUHAMMAD SYAFIQ BIN ABG. MOHTAR

2012184639
WORKING CAPITAL MANAGEMENT: THE MARKET VALUATIONS AND PROFITABILITIES

NOTE: ATTACH THIS FORM to FINAL PROPOSAL – EACH FOR ADVISOR & 2ND EXAMINER
An Evaluation Criteria for Project Paper Offered to all

BBA (Hons.) at Faculty Business And Management.
Assessment of Final Proposal

EVALUATION CRITERIA FOR FIN668 (Project Paper)
Name of Student ABG. MUHAMMAD SYAFIQ BIN ABG. MOHTAR

Student ID 2012184639
Research Title: WORKING CAPITAL MANAGEMENT: THE MARKET

VALUATIONS AND PROFITABILITIES.
CRITERIA MAXIMUM MARKS

MARKS AWARDED
1 Introduction and Background – Chapter 1 15
2 Problem Statement – Chapter 1 10
3 Objectives – Chapter 1 10
4 Scope of Study – Chapter 1 5
*Hypothesis / Research Questions –

5 Chapter 1 10
6 Literature Review – Chapter 2 20
7 Research Methodology – Chapter 3 30
RAW SCORE 100

*Hypothesis – Quantitative Papers * Research Question – Qualitative Papers
Advisor CAROLIN ANN ENCHAS

2nd Examiner NORZAIHAN HASHIM
Comments
*Ensure that you write the topics being assessed above according to % of marks*
2

Table of Contents

Assessment of Final Proposal 2
List of Abbreviations 5
1.0 INTRODUCTION 6
1.1 Introduction 6
1.2 Background of Study 6
1.3 Problem Statement 8
1.4 Research Objectives 9
1.4.1 Main Research Objective 9
1.4.2 Specific Research Objectives 9
1.5 Research Questions 9
1.5.1 Main Research Question 9
1.5.2Specific Research Questions 10
1.6 Theoretical Framework 10
1.7 Hypotheses 10
1.7.1 Null Hypothesis (Ho) 11
1.7.2 Alternate Hypothesis (HA) 11
1.7.3 Main Hypothesis Statement 11
1.7.4 Specific Hypothesis Statements 11
1.8 Definitions of Terms 12
1.8.1 Terms 12
1.10 Limitations of Study 16
1.11 Scope of Study 16
2.0 LITERATURE REVIEW 18

2.1 Introduction 18
2.2 The Concepts of Working Capital Management 19
2.3 Market Valuation 20
2.4 Profitability 20
2.5 The Relationship between Working Capital Management (WCM) and Market
Valuation. 21
2.6 Relationship between Working Capital Management (WCM) and Profitability. 22
3.0 RESEARCH METHODOLOGY 23

3.1 Introduction 23
3.2 Data Collection 23
3.3 Secondary Data 23
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3.4 Variables Specification 24

3.4.1 Dependent Variable 24
3.4.2 Independent Variables 24
3.5 Research Design 24
3.6 Purpose of the Study 25
3.7 Types of Investigation 25
3.8 Researcher Interference 25
3.9 Study Setting 25
3.10 Unit of Analysis 25
3.11 Time Horizon 26
3.12 Research Framework 26
3.13 Sampling Design 26
3.13.1 Target Population 26
3.13.2 Sampling Size 27
3.14 Tests Consideration for Data Analysis 28
Appendices 29
Appendix 1: Definitions of Tests. 29

1. Normality test 29
2. Autocorrelation - Serial Correlation Test 29
3. Heteroscedasticity Test – Variance of Error Term Test 29
4. Test on functional form 30
5. Multicollinearity Test 30
6. Correlation test: Covariance analysis 30
7. Multiple Linear Regression Model 31
8. F-test 32
9. Coefficient of Determination R² 32
10. Adjusted R-squared 32
11. Durbin Watson Test 33
Appendix 2: Notations, Measures & Data Sources. 34
Appendix 3: List of Companies 35
References 36

4

List of Abbreviations

BM Bursa Malaysia
CA Current Assets
CATAR Current Assets to Total Assets Ratio
CCC Cash Conversion Cycle
CL Current Liabilities
CLTAR Current Liabilities to Total Assets Ratio
CR Current Ratio
DR Debt Ratio
GDP Gross Domestic Product
GROSS Gross Operating Profit
ROA Return on Assets
ROC Return on Capital
ROE Return on Equity
TA Total Assets
TQ Tobin’s Q
WC Working Capital
WCM Working Capital Management.
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Chapter 1
1.0 INTRODUCTION
1.1 Introduction
This chapter provides the overall picture of the research project. It gives an
introduction about the background of the research and also comprises of the problem
statements, research questions, research objectives, theoretical framework, study
limitation and scope of work.
1.2 Background of Study

Current squeeze on cash and credit is threatening the survival of many
businesses all around the globe primarily in Malaysia. It’s considered the main
source of company’s working assets and the liabilities or collectively referred to as
working capital. It is undeniable that corporations could not exist without working
capital, and in facts, a corporation with a weak working capital management (WCM)
would eventually will face many difficulties and in the end leading to the shutting
down of the corporation itself. Nonetheless, the management of working capital
necessitates short-term decisions in working capital (WC) and financing of all
aspects of both firm’s short-term assets and liabilities (Mohamad and Mohd Saad
2010). The main objective is to ascertain that firm has the ability to continue
operating with sufficient cash flow for payment of both maturing short-term debt and
impending operational expenses. Consequently, its involve crucial decisions in
multiple aspects, including managing account payables and account receivables,
preserving a certain level of inventories and the investment of accessible cash. In
view of that, working capital management has become one of the most important
issues in the organizations where many financial executives strive to identify the
basic working capital drivers and the appropriate level of working capital (Lamberson,
1995).
Thus, its requirements are having an impact on the market valuations of a

business, which in erratic times falls under even greater analysis by shareholders
and investors and its has been pointed out that an efficient working capital
management has becoming an essential element of the overall corporate strategy to
create shareholder value (Shin and Soenen, 1998 and Afza and Nazir, 2007).
According to Ganesan, (2007), optimization of working capital balance means
minimizing the working capital requirements and realizing maximum possible
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revenues. Further, efficient WCM increases firms’ free cash flow, which in turn
increases the firms’ growth opportunities and return to shareholders. Thus, firms are
trying to keep an optimal level of working capital that maximizes their value (Afza and
Nazir, 2007) and the efficient management of working capital is likely to yield
significant results and if this doesn’t been observed and been neglected, it can affect
the company severely and might as well put them in great danger simultaneously.
(Christopher and Kamalavalli, 2009). The significant of WC has been highlighted in
most of the literature of WCM. i.e, Eljelly (2004) described that the efficient WCM
engaged with planning and controlling current assets and liabilities in such a way that
eliminates the risk of inability to meet short-term obligations in hands with the
avoidance of excessive investments in these assets. According to Siddiquee and
Khan (2009), they indicate that the inefficient management of WC not only reduces
profitability but ultimately may also lead a concern to financial crisis thus in every
organization, irrespective of their profit orientation, size and nature of business, are in
needs of requisite amount of WC. Consequently, the efficient WCM is the most
crucial factor in maintaining survival, liquidity, solvency and profitability of the
concerned business organization. Thus, we could say that, the approach in
managing working capital has an enormous influence to the firm’s performance.
Many researchers and academia around the globe had carried out many
extensive empirical research on WCM in order to hypothesize firms’ performances
(see example, Shin and Soenen, 1998; Narware, 2004; Lazaridis and Tryfonidis,
2006; Padachi, 2006; Sayaduzzaman, 2006; Afza and Nazir, 2007; Chowdhury and
Amin, 2007; Ganesan, 2007; Raheman and Nasr, 2007; Christopher and
Kamalavalli, 2009 and Uyar, 2009). Nonetheless, the impact of various working
capital mechanisms on firm’s performance from Malaysia perspective might be
vaguely different due to the divergence in business environments between other
countries. Moreover, Malaysia is a developing country and if compared to developed
countries, it significantly shows a vague difference in term of economics, business
environments and also investors relations. It is because, the developed countries
economy can be considered as growing rapidly and when they face a slow
movement of economics or facing financial difficulties, which will lead to economic
downturn in these countries, will significantly give great impact to the Malaysian
economics. Considering the potential contribution of WCM to the organizations
performances which eventually related to the Malaysian economy, therefore, the
objective of this study is to discover the relationships between working capital
management and how it influence the firm’s value and profitability in a sample of ten
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(10) Malaysian listed companies which has been selected earlier by the researcher
from one particular industry.
Since many of the earlier study was built on western data, therefore, the
researcher want to carry out a specific research study exclusively on the influences
and how it’s affects the firm value and profitability of companies in Malaysia are
vastly scanty. Thus, this study was conducted with an intention to bridge the gap in
the literature by offering empirical evidence to the extent of which the result in
Malaysia would be paralleled to the previous studies conducted by the previous
researchers. Furthermore, this study also aim to bring some benefits where the
results can be contributed to the body of knowledgeable by identifying how market
value and profitability of Malaysian companies effected by their working capital.
Nonetheless, the findings of this study also hope to provide an insight for concerned
managers on the company’s WCM policy since it’s provide an important role on the
profitability of one particular firm by furnish more attention towards WCM (Ebrahim
Mansoori 2012).
1.3 Problem Statement

This research paper is aiming to ensure the working capital management
becoming much better and also to improve the firm’s market valuations and
profitability where it only can be achieved through strategic thinking in order to
operate effectively and efficiently.
However, inefficient working capital management not only will reduce the
profitability, but ultimately might as well lead to financial crisis. It is because, if the
company incurred a high expenditure in producing the products and services without
monitoring or having an efficient working capital, the company will significantly will be
having a low profit or they also might suffer great losses. The company will produce
less goods and services and thus will affect it sales and also profitability. This,
indirectly, will slow down the economic growth of the nation and also will affect the
economy and in the same time will affect the Gross Domestic Product (GDP) by the
behaviour of the companies either positively or negatively.
Nonetheless, working capital mechanisms on firm’s performance perspective

might be vaguely different due to the divergence in business environments between
other countries simply because different companies have different approaches or
methods. Thus, pessimistic working capital management will give impacts to market
valuations and profitability. Some of the working capital elements are current ratio,
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current asset to total assets ratio, current liabilities, debts, return on assets, return on
capital, return on equity and etc. In addition, cash and credit also threatening many
firms businesses since it’s been considered as sources of firm’s working assets and
the liabilities are collectively referred to as working capital. Therefore, this research
paper wants to calculate or measure the influences of the working capital
management and how it’s affects the profitability and the market valuations of the
companies. This also will indirectly, measure the performances of the selected
companies in Malaysia.
Hence, to show this finding, the researcher will use ratio analysis for
performance measurement and indicators since this analysis provides methods for
assessing the financial strengths and weaknesses of the firm’s performance using
information found in the financial statement.
1.4 Research Objectives
1.4.1 Main Research Objective

• To identify whether the working capital management will influence the market
valuations and profitability in Malaysian listed companies.
1.4.2 Specific Research Objectives

• To identify whether the current ratio (CR) influence the market valuations and
profitability in Malaysia listed companies.
• To identify whether the current asset to total asset ratio (CATAR) influence
the market valuations and profitability in Malaysia listed companies.
• To identify whether the debt ratio (DR) influence the market valuations and
profitability in Malaysia listed companies.
• To identify whether the current liabilities (CL) influence the market valuations
and profitability in Malaysia listed companies.
1.5 Research Questions

There are several questions occurs in the research. The questions are
classified into two categories, which are main research questions and specific
research questions. The questions have been developed based on the research
variables on theoretical framework.
1.5.1 Main Research Question

• How does working capital management influence the market valuations and
profitability in Malaysia listed companies?
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1.5.2 Specific Research Questions

• How does current ratio (CR), influences the market valuations and profitability
on Malaysia listed companies?
• How does current asset to total asset ratio (CATAR) influence the market
valuations and profitability on Malaysia listed companies?
• How does level of debt (DR) influences the market valuations and profitability
• How does current liability (CL) influence the market valuations and profitability
1.6 Theoretical Framework
INDEPENDENT VARIABLES DEPENDENTS VARIABLES
Current Market Valuations
Ratio • Tobin-Q
Debt
Ratio
Profitability
Current Assets to
• Return on
Total Assets Ratio Capital
• Return on
Equity
Current Liabilities to
• Return on
Assets
Total Assets Ratio
Framework 1: Theoretical Framework
1.7 Hypotheses
Hypothesis statement defined as logical conjecture statements of the
relationship between two or more variables expresses in the form of a testable
statement, which later will carry clear implications for testing the stated relations. By
testing the hypothesis, it is expected that solution could be identified to correct the
problem encountered (Zikmund W.G, Babin B.J, et al, 2013).
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Hypothesis elements are:-
1.7.1 Null Hypothesis (Ho)

• It is a statement that expressing there’s no relationship (significant)
between variables.
1.7.2 Alternate Hypothesis (HA)

• It is a statement that expressing there’s a relationship (significant)
between variables.
1.7.3 Main Hypothesis Statement

Ho: There is no significant influence between dependent variable and
independent variables.
HA: There is significant influence between dependent variable and independent

variables.
1.7.4 Specific Hypothesis Statements
1.7.4.5 Market Valuation

Ho: There is no significant influence between Tobin Q and working capital
components.
HA: There is significant influence between Tobin Q and working capital

components.
1.7.4.5 Profitability
Ho1: There is no significant influence between return on asset and working
capital components.
HA1: There is significant influence between return on asset and working capital
components.
Ho2: There is no significant influence between return on equity and working

capital components.
HA2: There is significant influence between return on equity and working capital
components.
Ho3: There is no significant influence between return on capital on working

capital components.
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HA3: There is a significant influence between return on capital on working capital

components.
1.8 Definitions of Terms

There have several terms that we must know in this study which are market
valuation, working capital management, profitability, current ratio (CR), current
assets, current liabilities, debt, debt ratio (DR), return on asset (ROA), return on
equity (ROE) and return on capital (ROC).
1.8.1 Terms
1.8.1.2 Market Valuation

Market value is the price at which an asset would trade in a competitive
auction setting. Other than that, market value also refers to the current or most
recently quoted price for a market-traded security (Raheman & Nasr, 2007). Market
value is often used interchangeably with open market value, fair value or fair market
value, although these terms have distinct definitions in different standards, and may
differ in some circumstances. Market value is a concept distinct from market price,
which is the price at which one can transact, while market value is the true underlying
value according to theoretical standards. The concept most commonly served in
efficient markets or disequilibrium situations where prevailing market prices are not
reflective of true underlying market value (Gitman, 2002). For market price to equal
market value, the market must be informational efficient and rational expectations
must prevail. The market value of an asset is determined by fluctuations in supply
and demand. It should be noted that market value represents what someone is
willing to pay for an asset and not the value it is offered for or intrinsically worth. In
other words, company's liquidity is the relationship between the cash that company
will have in the short term.
1.9.1.3 Working Capital Management

Working capital management is a managerial accounting strategy focusing on
maintaining efficient levels of both components of working capital, currents assets
and currents liabilities, in respect to each other. Working capital management
ensures a company has sufficient cash flow in order to meet its short-term debt
obligations and operating expenses (Mohamad and Mohd Saad 2010).
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1.9.1.4 Profitability
Profitability is measured with an “income statement”. This is usually from a
listing of income and expenses during a period of time (usually a year) for the entire
business (Gitman, 2002). An Income Statement is traditionally used to measure
profitability of the business for the past accounting period. However, a “pro forma
income statement” measures projected profitability of the business for the upcoming
accounting period. Other than that, we used profitability ratio such as return on asset
(ROA) and return on equity (ROE). It is a class of financial metrics that are used to
assess a business's ability to generate earnings as compared to its expenses and
other relevant costs incurred during a specific period of time (Raheman & Nasr,
2007). For most of these ratios, having a higher value relative to a competitor's ratio
or the same ratio from a previous period is indicative that the company is doing well.
Deelof (2003) also concluded that sales growth had a positive relation to changes in
accounting measure of profitability.
1.9.1.4 Current Ratio

The current ratio is a financial ratio that measures whether or not a firm has
enough resources to pay its debts over the next 12 months. Current ratio is liquidity
ratios that measure a company's short-run ability to pay its maturing obligations
(Kieso, 2004). It compares a firm's current assets to its current liabilities. The current
ratio is an indication of a firm's market liquidity and ability to meet creditor's
demands. Acceptable current ratios vary from industry to industry and are generally
between 1.5 and 3 for healthy businesses. If a company's current ratio is in this
range, then it generally indicates good short-term financial strength. If current
liabilities exceed current assets which is the current ratio is below 1, then the
company may have problems meeting its short-term obligations. If the current ratio is
too high, then the company may not be efficiently using its current assets or its short-
term financing facilities. This may also indicate problems in working capital
management.
When the value is less than 1 indicate that a firm may have difficulty meeting
current obligations (Ng. K.K, Zhang W. & et al, 2010). Low values, however, do not
indicate a critical problem. If an organization has good long-term prospects, it may be
able to borrow against those prospects to meet current obligations. Some types of
businesses usually operate with a current ratio less than one. If all other things were
equal, a creditor, who is expecting to be paid in the next 12 months, would consider a
high current ratio to be better than a low current ratio, because a high current ratio
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means that the company is more likely to meet its liabilities which fall due in the next
12 months.
1.9.1.5 Current Assets

It is cash ad any other company asset that will be turning to cash within one
year from the date shown in the heading of the company’s balance sheet.
1.9.1.6 Current Liabilities

It is an obligation that is due within one year of the data of a company’s
balance sheet and will require the use of current asset or ill create another current
liability.
1.9.1.7 Debt Ratio

Debt ratio include in coverage or solvency ratio that refers to a company's
long-run financial viability and its ability to cover long-term obligations. It measures
the degree to which long-term creditors and investors are protected (Kieso, 2004).
Debt Ratio is a financial ratio that indicates the percentage of a company's assets
that are provided via debt. It is the ratio of total debt, which is the sum of current and
non-current liabilities and total assets which is the sum of current assets, fixed
assets, and other assets such as 'goodwill'. The higher the ratio, the greater risk will
be associated with the firm's operation (Ng. K.K, Zhang W. & et al, 2010). In addition,
high debt to assets ratio may indicate low borrowing capacity of a firm, which in turn
will lower the firm's financial flexibility. Like all financial ratios, a company's debt ratio
should be compared with their industry average or other competing firms. Total
liabilities divided by total assets. The debt/asset ratio shows the proportion of a
company's assets which are financed through debt.
1.9.1.8 Return on Assets

The return on assets (ROA) percentage shows how profitable a company's
assets are in generating revenue. The answer of the percentage tells you what the
company can do with what it has, for example how many ringgits of earnings they
derive from each ringgit of assets they control. It's a useful number for comparing
competing companies in the same industry (Ng. K.K, Zhang W. & et al, 2010). The
number will vary widely across different industries. Return on assets gives an
indication of the capital intensity of the company, which will depend on the industry;
companies that require large initial investments will generally have lower return on
assets. ROA tells you what earnings were generated from invested capital assets.
ROA for public companies can vary substantially and will be highly dependent on the
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industry. This is why when using ROA as a comparative measure it is best to

compare it against a company's previous ROA numbers or the ROA of a similar
company. Both of these types of financing are used to fund the operations of the
company. The ROA figure gives investors an idea of how effectively the company is
converting the money it has to invest into net income. The higher the ROA number,
the better, because the company is earning more money on less investment. ROA is
a ratio which explains how efficiently a firm is utilizing its existing resources for the
maximization of profits. Increase in ROA normally shows an increase in profitability
(Gitman, 2002).
1.9.1.9 Return on Equity

ROE measures the rate of return on the ownership interest that is
shareholders equity of the common stock owners (Ng. K.K, Zhang W. & et al, 2010).
Other than that, it is the amount of net income returned as a percentage of
shareholders equity. Return on equity measures a corporation's profitability by
revealing how much profit a company generates with the money shareholders have
invested and also known as net assets or assets minus liabilities. Income or the lack
of it affects the company's ability to obtain loans, its liquidity position, and its ability to
grow (Weygandt, 1998). ROE shows how well a company uses investment funds to
generate earnings growth. ROEs between 15% and 20% are generally considered
good.
1.9.1.10 Tobin-‐Q
Tobin’s Q was introduced in 1968 by James Tobin and William Brainard.
Tobin’s Q is the ratio between the market value and replacement value of the same
physical asset. The Tobin’ Q which is a formula to ease investment analysis, was
initially used to simplify an investment analysis and used as a measure of how to
make good investments. When the firm value (Q-value) is higher than one, it implies
that the firm has some control of intangible assets such as patents that could lead to
high future growth. When the Q value is lower than one, the firm has to pay more
than it gets, which means that the market value is less than the replacement cost of
assets. A Q-value of two implies that the specific firm is valuated to the double cost
of its own assets, this is very good for the company, and this is seen as a great
investment. We believe that this ratio has considerable macroeconomic significance
and usefulness, as the nexus between financial markets and markets for goods and
services. Simply expressed, the value of a firm is according to Tobin (1969):
Firm value = replacement cost of assets + value of growth options.
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1.9.1.11 Return on Capital

Return on capital is a profitability ratio. It measures the return that an
investment generates for capital contributors for example stockholders. Return on
capital indicates how effective a company is at turning capital into profits. The
general equation for return on capital is ‘Net Income-Dividend/Total Equity’ (Ng. K.K,
Zhang W. & et al, 2010).
1.10 Limitations of Study

• Lack of experience in doing the research as the researcher is doing the
research for the first time.
• Lack of time. Simply because the researcher is only given 20 weeks of time to
carry out and completing the study.
• High cost. The researcher is lack of money to further the study of the
research if the researcher wanted to know more on the field of study.
• Lack of knowledge in using E-Views program. Simply because the researcher
only been introduced to the software and learn how to use it in a short period
only, where the researcher only attended two (2) hours seminar to learn the
software thus doesn’t help much on understanding the program.
• The data in this research is limited to 5 years of interval data only.
• The data is only for ten (10) selected companies and does not represent all of
the companies.
• There is a limitation on finding the data if the researcher wants to include
more companies or industries.
• The researcher also has difficulties to find the data because of the researcher
is currently working while he’s doing the research.
• The researcher is also has lack of knowledge about the sources of finding the
data needed in the research.
1.11 Scope of Study

The scope of the study for this research is more to a case study where the
researcher wanted to know the influences of working capital management (WCM) to
firm’s market valuations and their profitability and how it’s affecting them. And for that
purpose, the researcher intended to run an empirical study on ten (10) selected
companies which the researcher had chose earlier. In order to know how WCM
influences the market valuations and profitability of the companies, the researcher
will first evaluate the performances of the companies through their assets and
liabilities thus, the researcher will measure it by using ratio analysis.
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The facts that corporations could not exist without working capital, is thus,
undeniable. Nonetheless, the management of working capital necessitates short-
term decisions in working capital (WC) and financing of all aspects of both firm’s
short-term assets or long-term assets and also its liabilities either short-term liabilities
or long-term liabilities.
Therefore, by doing the study onto the working capital management on how it
influence the market valuations and profitability of the selected companies, will
probably show a better picture of the impact toward the market valuations and the
profitability of the firm’s.
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Chapter 2
2.0 LITERATURE REVIEW

2.1 Introduction
In reviewing the literature on this area of study, it was found that there have
been a lot of studies in market valuation and profitability. However, this research
paper has tried to include all available material done for reference. The findings from
the empirical results of evidence about the study would explain the significant of
working capital management and its effect to the performance of Malaysia listed
companies in perspectives of market valuation and profitability. In this section of
chapter two, the first part focuses on broad approach, and while the second part
focuses on narrow approach.
The importance of working capital management is not new to the companies

finance and investment field and the review of prior literature reveals that exists
significant relation between performance and working capital management by using
different components of variable selection for analysis. The evaluates on company
returns in example return on asset (ROA) to represent market performance and
indicates that companies adopting an aggressive approach towards working capital
financing policy giving more value to the company while inverse relationship between
aggressiveness of working capital investment policies on companies performance
(Nor Edi Azhar & Noriza, 2010).
In addition, to analyze the impact of working capital management on

companies’ profitability, the gross operating profit (GROSS) can be used as the
dependent variable, it because GROSS relates more closely to the cash conversion
cycle and its components, various measurement of working capital management,
while independent variable by using cash conversion cycle (Napompech, June
2012). She concludes based on research on Thailand listed firms in seven industries
such as consumer products, agriculture, and construction.
In the case of Malaysia, according to Irene & Lee (2007) they explore the
prevailing working capital management practices of some well-performed Malaysian
public companies listed on Bursa Malaysia. They examine the correlation between
profitability and the level of working capital of the sample companies and founds that
profitability and working capital are linearly related positively to a certain extent.
However, we found a limited published study on the consequences of working capital
18

management on firm’s performance from Malaysia perspectives. Therefore, we need

still to understand how changes in working capital management can affect the
performance of market valuation and profitability in listed companies in Bursa
Malaysia. Thus this paper attempt to investigated selected components variable
namely current ratio (CR), current asset to total asset ratio (CATAR), debt ratio (DR),
return on asset (ROA) and return on equity (ROE) and their influencing toward the
market valuation and profitability in Malaysia.
2.2 The Concepts of Working Capital Management

The working capital management is very importance things that should the
companies analyze and control to ensure they have always having a good
performance of market valuation and profitability. The efficient working capital
management involves planning and controlling current asset and liabilities in a
manner eliminates the risk of inability to meet due short terms obligations on the
other hand and avoid excessive investment in assets on the other hand (Ashraf,
2012).
There have two concepts in working capital management which are gross
working capital that refers to working capital as the total of current assets, whereas
the net working capital refers to working capital as excess of current assets over
current liabilities (Rama, 2009). It can mathematically express as following;
Gross working capital = Total current assets
Net working capital = Current assets – Current liabilities.
In addition, working capital divided by two approaches, which are

conservatives approach and aggressive approaches. The financing policy of the firm
is said to be conservative when it depends more on long-term funds for financing
needs. Under this approach, the firm finances its permanent assets and also a part of
temporary Current Assets with long-term financing. In the periods when the firm has
no need for temporary Current Assets, the idle long-term funds can be invested in
tradable securities to conserve liquidity (Rao, 2012).
The aim of working capital management is to achieve balance between

having sufficient working capital to ensure that business is liquid but not too much
that the level of working capital reduced profitability. Therefore, management of
working capital has profitability and liquidity implication; the empirical studies in
developed economies have established that efficient working capital management
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improves market value of a firm and consequently makes positives impact upon
shareholders’ value (Sunday. E., Abiola, & Lawrencia, 2012). Even so, the impact of
various working capital mechanisms on firm’s performance from Malaysia
perspective might be vaguely difference due to the divergence in business
environment between other countries it is considering the potential contribution of
WCM to firm performance which eventually related to the economy of Malaysia (Nor
Edi Azhar & Noriza, 2010).
2.3 Market Valuation

There are many relationships between the working capital management and
effect to the market value. The importance of working capital management has been
a common view among researchers. Justification for this common opinion about why
working capital management is significant for a firm centre on the relationship
between efficiency in working capital management and firm profitability and its
implications on shareholder’s value.
Maximizing profit or shareholder value are the ultimate objectives for a

company, however preserving liquidity is important too. A company needs to care
about profit for their continuity, but at the same time a company needs to focus on
liquidity to prevent insolvency or bankruptcy. This presents a trade-off between these
two objectives, focusing on maximizing profits should not be at the cost of liquidity,
and calls for effective working capital management (Raheman & Nasr, 2007). An
optimal working capital management is expected to contribute positively to the
creation of firm value. To reach optimal working capital management firm manager
should control the trade-off between liquidity such as ability to pay bills, keep sales
coming in, keep customers’ happy, and play it safe and profitability accurately.
Working capital management is the lifeblood of business and every manager's
primary task is to help keep it flowing and to use the cash flow to generate profits.
2.4 Profitability
Working capital management is a very important component of corporate
finance because it directly affects the liquidity and profitability of the firm (Raheman &
Nasr, 2007). Besides that, a longer cash conversion cycle might increase profitability
because it leads to higher sales. However, corporate profitability might also decrease
with the cash conversion cycle, if the costs of higher investment in working capital
rise faster than the benefits of holding more inventories and/or granting more trade
credit to customers (Ashraf, 2012).
20

One of the earlier studies done by Jose, Lancaster, & Stevens (1996) for the
twenty-year period from 1974 through 1993 of 2,718 firms offers strong evidence that
aggressive working-capital policies indicate by shorter cash conversion cycle
enhance profitability. Most of the empirical studies support the traditional belief about
working capital and profitability that reducing working capital investment would
positively affect the profitability of firm (aggressive policy) by reducing proportion of
current assets in total assets. According to Deelof (2003) analyzed a sample of
Belgian firms, and Wang (2002) analyzed a sample of Japanese and Taiwanese
firms, emphasized that the way the working capital is managed has a significant
impact on the profitability of firms and increase in profitability by reducing number of
day’s accounts receivable and reducing inventories.
According to Deelof (2003), he discussed that most firms had a large amount
of cash invested in working capital. It can therefore be expected that the way in
which working capital is managed will have a significant impact on profitability of
those firms. Using correlation and regression tests he found a significant negative
relationship between gross operating income and the number of days accounts
receivable, inventories and accounts payable of Belgian firms. On basis of these
results he suggested that managers could create value for their shareholders by
reducing the number of days’ accounts receivable and inventories to a reasonable
minimum. The negative relationship between accounts payable and profitability is
consistent with the view that less profitable firms wait longer to pay their bills.
2.5 The Relationship between Working Capital Management (WCM) and

Market Valuation.
Working capital management is very important in firms to produce higher
returns for the stakeholders but the researcher not paid much attention. When the
WC requirements are not properly managed or allocated more than the requirement
its decrease the benefits of short-term investments (Nazir & Afza, 2009). According
to Raheman, Afza, Qayyum, & Bodla (2010) Net Trade Cycle, Cash Conversion
Cycle and Inventory Turnover in days are significantly affecting a firm’s performance.
However profitability of the firm’s has been significantly affected by the

financial leverages, sales growth and the firm size. Difficulties are beard by
manufacturing businesses that belonged to collection and payment strategies.
Pakistani firms are following conservative WCM policy and attention is needed to
fines tune their collection and payment policy. Due to the effects on profitability,
WCM is the key determinants of firms' value.
21

According to Deelof (2003) efficient working capital management, trying to

maintain an optimal level of working capital is a fundamental part of maximizing
shareholder value. If working capital management is efficient it can ultimately
increase the profitability of a company (Raheman & Nasr, 2007).
2.6 Relationship between Working Capital Management (WCM) and

Profitability.
Working Capital Management has its effect on liquidity as well on profitability
of the firm. An attempt has been made to examine the effect of different variables of
working capital management including the Debt ratio, Average collection period,
Inventory turnover in days, Average payment period, Cash conversion cycle and
Current ratio on the net operating profitability of sample firms. Descriptive and
Regression are used for analysis. According to Ashraf (2012), the results show that
there is a strong negative relationship between variables of the working capital
management and profitability of the firm except the sales that is size of the company.
They also find that there is a positive relationship between size of the firm and its
profitability. There is also a significant negative relationship between debt used by
the firm and its profitability.
Other than that, Uyar (2009) said the relation between profitability and
liquidity was examined, as measured by current ratio and cash gap (cash conversion
cycle (CCC)) on a sample of joint stock companies in Saudi Arabia using correlation
and regression analysis. The study found that the cash conversion cycle was of more
importance as a measure of liquidity than the current ratio that affects profitability.
The size variable was found to have significant effect on profitability at the industry
level. The results were stable and had important implications for liquidity
management in various Saudi companies. First, it was clear that there was a
negative relationship between profitability and liquidity indicators such as current
ratio and cash gap in the Saudi sample examined. Second, the study also revealed
that there was great variation among industries with respect to the significant
measure of liquidity.
Other than that, the relation between profitability and liquidity was examined,
as measured by current ratio and cash gap (cash conversion cycle (CCC)) on a
sample of joint stock companies in Saudi Arabia using correlation and regression
analysis. The study found that the cash conversion cycle was of more importance as
a measure of liquidity than the current ratio that affects profitability (Ashraf, 2012).
22

Chapter 3
3.0 RESEARCH METHODOLOGY
3.1 Introduction
In this chapter, the focus is on the methodology used in the study. It include
the data collection, data source, variables, research design, theoretical research
framework, sampling design, test consideration for data analysis, hypotheses
statement and conclusion. A total of two selected component variables namely
market valuation and profitability, and working capital are use in this research. The
frequencies of the variables are on yearly basis from year 2008 to 2012.
3.2 Data Collection

This research only used secondary data, which retrieved from selected
information of listed companies listed in Bursa Malaysia (BM), which use a sample
for five-year interval period. The samples are taken from Malaysia companies which
the sample period taken from the year 2008 to 2012. This study only involves ten
(10) companies from Malaysia. These companies are selected from only one industry
which is consumer industry. Basically these companies are taken from the top ten
(10) companies in the consumer industry, which the researcher already chose
earlier. The name of the chosen companies can be found in the Appendices. (See
Appendix 3)
3.3 Secondary Data

Secondary data refers to the statistical material, which is obtained from
someone else records. Secondary data helped researcher’s understanding so as to
define problem, formulate research design and interpret the results. This type of data
is generally taken from sources like magazines, newspapers, reports, journals,
bulletins etc. (Zikmund, W.G, et all, 2012)
This research paper concentrate on secondary data obtained from one

source. The reason for using secondary data from the same source is that it is more
reliable compared to obtaining quality data from different sources and also it saves
time in data collection. This paper utilizes panel data. The sample of this study
comprises of 50 observations each of the independent and dependent variables on a
yearly basis over a 5-year period from 2008 to 2012. The panel data used are from
2008 to 2012 for all the independent variables of working capital management which
23

are current ratio (CR), debt ratio (DR), current asset to total asset (CATAR) and
current liabilities to total assets ratio (CLTAR), and also dependent variables of
market valuations is Tobin Q (TQ), and for profitability are return on capital (ROC),
return on asset (ROA) and return on equity (ROE). For easy reference, the notations,
measures and also the sources of the data used for all variables in this study is
included in Table 1 at the Appendix.
3.4 Variables Specification

A variable is anything that can take on differing or varying values. The values
can differ at various times for the same objects or person. The variables consist of
dependent and independent.
3.4.1 Dependent Variable

The dependent variable is denoted as variable of primary interest to the
researcher as it provides a measurement of the effect of the independent variables.
In this research, dependent variable are market value of the firm and it was proxy by
Tobin’s Q (TQ), and profitability which are return on capital (ROC), return on asset
(ROA) and return on equity (ROE), where it indicate the outcome of the changes
brought by changes in the independent variables.
3.4.2 Independent Variables

Independent variables (predictor variables) are the ones that influence the
dependent variable and they explain the variance in dependent variable. In this
research, independent variables of working capital management which are current
ratio (CR), debt ratio (DR), current liabilities to total asset (CLTAR) and current asset
to total asset (CATAR) are used to find the relationship between dependent and
independent variables in order to get the final result of this research.
3.5 Research Design

Research design involves a series of rational decision making choices with
issues relating to decision regarding the purpose of the study, the types of
investigation, the extent of researcher interference, the study setting, unit of analysis
and the time horizon of the study (Veera Pandiyan & V.G.R Chandran, 2011). This
study engages in the hypotheses testing of the effect of the working capital
management on the market valuations and profitability on Malaysia selected listed
companies.
24

3.6 Purpose of the Study

Research serves many purposes. Three of the most common and useful
purposes are exploration, description and causal or hypothesis testing. Many studies
often have more than one of these purposes but each has different implications for
other aspects of research design. The purpose of this study is to analyze the
influences and the effects of the relationship of the working capital management on
the selected component variables that influence the market valuations and
profitability.
3.7 Types of Investigation

Basically, there are three types of investigation, which are clarification,
correlations and causal. In the first type that is clarification investigation, the purpose
is to obtain a better comprehension of the concepts involved in the research problem.
A correlation relationship is where two or more concepts or variables move
simultaneously. (Zikmund, W.G, et all, 2012) In this research study, the researcher
will use the investigation which falls under causal investigation. Here it shows the
effect and how its influence a concept or variables where it can cause a change or
movement in another concept or variables.
3.8 Researcher Interference

Researcher interference involves the extent of interference by the researcher
on the variables under study, which has a direct bearing on the research decision.
However, as this research is testing the hypotheses based on observations of past
data of component variables and its relationship, there is a minimal or no interference
at all by the researcher. This research aims to identify the relationship between the
working capital management and its effects to the market valuation and profitability,
by using causal investigation techniques.
3.9 Study Setting

As the research study is based on secondary data obtained from Bloomberg,
the study is carried out on a non-contrived setting that is in the natural environment
where work proceeds normally.
3.10 Unit of Analysis

The unit of analysis used in this study are the units of component variables
such as current ratio (Times (x)), debt ratio (Percent (%)), current liabilities to total
asset ratio (Percent (%)) and current asset to total asset (Times (x)) for independent
25

variables. And the unit of analysis for dependent variable are Tobin Q (Times (x)),
return on capital (Percent (%)) return on asset (Percent (%)) and return on equity
(Percent (%)).
3.11 Time Horizon

This research will be using the longitudinal studies. It is a study over a longer
period of time in order to meet the research objective. The research concentrate on
the effects of the component variables towards market valuations and profitability in
listed companies which Tobin Q (TQ), return on asset (ROA), return on capital (ROC)
and return on equity (ROE) over the past five (5) years interval period. This research
used monthly data range from year 2008 to 2012.
3.12 Research Framework

Research framework is developed to better understand about the effects of
selected component variables that influence the market valuation and profitability in
Malaysia listed companies. This framework is shown as below.
Market Valuation
Working Capital
Management
Profitability
Framework 2: Research Framework
3.13 Sampling Design

Sampling design is a process of selecting a sub-group which is related to the
research problem from entire group means complete population to make the task of
survey more manageable and informational.
3.13.1 Target Population

This research targets on Bursa Malaysia Listed Companies. It investigates
the relationship between the working capital selected component variables towards
market valuations and profitability on Malaysia selected listed companies. The target
population is focuses on ten (10) companies which been selected from only one
industry which is consumer industry in Malaysia and the companies are taken from
the Bursa Malaysia listed companies. The selections of the companies are based on
26

their market size in the market and these companies are basically the top ten (10)
companies in Malaysia in the consumer industry. They also been chose because of
their volatility toward the condition of the market whether normal, market boom or
recession. It is because, during recession, these are the companies that will be less
affected by the economic downturn because majority of the goods and services are
needed by the consumers since this research only involve one particular industry.
3.13.2 Sampling Size

The research study observation is over a five-year period from 2008 to 2012.
A total of 50 yearly observations for each variable were taken into consideration for
this study. The sampling element formulas had been describes and enlisted in Table
1 in the Appendix 2.
Mathematically, those variables can be expressed in a form of:
Y1 = β0 + β1 X1i + β2 X2i + β3 X3i + β4 X4i + Ɛ
Where, Y is the dependent variable, βi is the coefficient measuring the

change in market valuation and profitability for a change in working capital
components factor, X are the working capital components, and Ɛ is error term. In the
study, the following factors are used:
Y1: Tobin Q (TQ)
Y2: Return on Asset (ROA)
Y3: Return on Equity (ROE)
Y4: Return on Capital (ROC)
X1: Current Ratio (CR)
X2: Current Asset to Total Asset (CATAR)
X3: Debt Ratio (DR).
X4: Current Liabilities to Total Assets Ratio.
27

3.14 Tests Consideration for Data Analysis

This research paper involves the use of multiple linear regressions with panel
data. The steps taken for analyzing panel data using multiple regressions are;
1. Check if data is stationary.
2. Check on the assumptions.
3. Perform correlation matrix of all variables (of the stationary data)
4. Perform regression (using the stationary data)
Therefore, the researcher will do several tests in conducting the study. In

order to see the significant of the variables components, the researcher has choose
to do a Multiple Regression Coefficient to test all the variables and also for the
purpose of hypotheses testing. The researcher also will include other type of tests to
make further empirical study. The tests are Normality Test, Autocorrelation- Serial
Correlation Test, Heteroscedasticity Test, Functional Form Test, Multicollinearity
Test, Correlation- Covariance Test, F-Test, Coefficient of Determinations, Adjusted
R-Squared and also Durbin Watson Test. The further definitions of the tests are
included in the Appendix.

28

Appendices
Appendix 1: Definitions of Tests.
1. Normality test
Normality test is a test use to determine whether error term is normally
distributed. Here Jarque-Bera test is use as the normality test (Sekaran and Bougie
2010). In coming to a conclusion on this test, we focused on the p-value of Jarque-
Bera statistic. If the p-value of Jarque-Bera is greater than 5% significance level, this
indicates that we fail to reject the null hypothesis and can conclude that the error
term is normally distributed. The hypotheses in this normality test are as follow:
HO1: Error term is normally distributed.
HO2: Error term is not normally distributed.
2. Autocorrelation -‐ Serial Correlation Test

Autocorrelation or serial correlation test is to investigate whether there is
serial independence for the error term. It is to determine the correlation between two
different time series data (Sekaran and Bougie 2010). Autocorrelation implies that
error term from one time period depends upon other time periods. Breush-Godfrey
Serial Correlation test is the test applied here. Under Eview7 this is identified as
Breush-Godfrey Serial Correlation LM test. According to Stock and Watson (2006),
autocorrelation is defined as a condition where residuals are related to each other
and it can be confirmed from Probability of Chi-Square of Obs*R-squared statistic. If
the p-value of Obs*R-squared is more than the 5% significance level, this shows that
we fail to reject the null hypothesis which mean the residual are not correlated or
there is serial independent for the error term. The hypothesis in this test is:
HO1: Error term is serially independent. (No autocorrelation problem).
HO2: Error term is not serially independent. (Have autocorrelation problem).
3. Heteroscedasticity Test – Variance of Error Term Test

Heteroscedasticity is a problem when the error terms do not have constant
variances meaning unequal spread or variance (Zikmund., Babin. et al. 2012). It is a
condition where the conditional variance of Y population varies with X. In Eview7, the
test comes under heteroscedasticity test: Breusch - Pagan - Godfrey.
Heteroscedasticity can be detected from probability of Obs*R-squared. If p-value of
29

Obs*R-squared is more than the 5% significance level, we fail to reject the null
hypothesis which mean that the residual are homoscedasticity. If however the p-
value is less than a 5% significant level, we reject the null hypothesis, which means
that the sample indicates that the error term is heteroscedasticity. The hypotheses
for this test are:
HO1: Error term is homoscedastic. (error term have constant variance).
HO2: Error term is heteroscedastic. (error term do not have constant

variance).
4. Test on functional form

This test is use to determine that there is no misspecification of functional
form and the data fit multiple linear regression (Zikmund., Babin. et al. 2012). In
Eview7, the test that is use is the Ramsey’s Regression Specification Error Test
(RESET). In this test, the probability value to be used can either be t- statistic, f-
statistic, or the likelihood ratio. If the p-value is greater than 5% significance level in
any of these three statistics the conclusion is that we fail to reject the null hypothesis,
which means the sample indicate that there is no misspecification of functional form.
The hypotheses involve here are:
HO1: No misspecification.
HO2: Error in specification.
5. Multicollinearity Test
Multicollinearity can be defined as the existence of ‘perfect’ or exact, linear
relationship among some or all explanatory variables of a regression model (Raynar
Frisch, 1934). It is a condition where the independent variables are highly correlated
with each other. Serious Multicollinearity problem can be detected using Centered
Variance Inflation Factor (VIF). A VIF of 1 means that there is no correlation while
VIFs exceeding 10 are signs of serious multicollinearity requiring correction. The
hypotheses here are as given below:
HO1: That is no multicollinearity problem.
HO2: There is multicollinearity problem.
6. Correlation test: Covariance analysis

In this test the objective is to observe if there exists any linear relationship or
correlation of the dependent variable with any of the independent variable (Zikmund.,
30

Babin. et al. 2012). The covariance analysis output under Eview7 provides an
indication as to whether there is correlation between the dependent variable with any
of independent variables. The indicator here is to observe the p-value of the t-statistic
of the respective pairs of dependent and independent variables. If the p-value of the
t-statistic is less than 5% significance level, the null hypothesis is to be rejected and
therefore there is correlation between the two variables. The hypothesis related to
the t-test here is the two tailed correlations test denoted as follows:
HO1: There is no correlation.
HO2: There is correlation.
7. Multiple Linear Regression Model

As earlier mentioned, this study uses multiple linear regression model’s with
panel data. Multiple regression is a method of data analysis that is use to examine
the significant relationship of a dependent variable to any other independent
variables factors (Berger, 2003). Before doing a regressing on the model, variables
data are converted as logarithm as it would reduce the gap of the data between the
variables.
Economic Function:
Market valuation and profitability = f (working capital components)
Econometric Model:
Y2 = β0 + β1 X1i +β2 X2i + β3 X3i + β4 X4i + Ɛ
Where, Y is the dependent variable, βi is the coefficient measuring the

change in market valuation and profitability for a change in working capital
components factor, X are the working capital components, and Ɛ is error term. In the
study, the following factors are used:
Y1: Tobin Q (TQ)
Y2: Return on Asset (ROA)
31

Y3: Return on Equity (ROE)
Y4: Return on Capital (ROC)
X1: Current Ratio (CR)
X2: Current Asset to Total Asset (CATAR)
X3: Debt Ratio (DR)
X4: Current Liabilities to Total Assets Ratio (CLTAR)
8. F-‐test
F-test is the measure of the overall significance of the estimated regression or
overall fitness of the model. This test provides an indication whether any of the
independent variables is useful in explaining the variance of the dependent variable.
If the p-value of F-test is less than the 5% significance level, it indicate that the null
hypothesis is rejected we can conclude that at least one of independent variables is
important in explaining the dependent variable (Sekaran and Bougie 2010). The
hypotheses here are as follow:
H0: No independent variable affects the dependent variable.
H1: At least one independent variable affects the dependent variable.
9. Coefficient of Determination R²

R² is to measure of overall fit in the sense of measuring how close the point to
the estimated regression line in the regression plot. It is a test of goodness of fit and
issued to determine how good the regression fits the data (Zikmund., Babin. et al.
2012). R² measure the proportion of total variation of dependent variables explained
by the regression. Generally, R² equal to 1 mean the regression fit the data perfectly
and R² equal 0 mean the regression is no better than guessing the sample mean
(Richard Startz, 2007). In other words, if R² show the value of 1 it indicates strong
correlation between dependent and independent variables. If R² value is 0, it shows
that the changes of variation in independent variable are not explained by
independent variable.
10. Adjusted R-‐squared

“Adjusted R-squared” make an adjustment to R² to take into account of the
number of right-hand side variables (independent variables) in the regression. R² as
mention above, measure what fraction of the variation in the left-hand side variable is
32

explained by the regression (Zikmund., Babin. et al. 2012).In the case of adjusted R–
squared when an additional right-hand side variable is added to a regression, R²
always rises. The adjusted R-squared, subtracts a small penalty for each additional
variable added (Richard Startz, 2007). The adjusted R-squared statistic can take on
any value less than or equal to 1, with the value closer to 1 indicating a better fit.
Negative value can occur when the model contain term that do not help to predict the
respond.
11. Durbin Watson Test

This is the classic test for serial correlation as to whether there is serial
independence in the error term (Sekaran and Bougie 2010). This test is identified by
Durbin Watson statistic in the Eview7 regression output. A Durbin Watson statistic
close to 2.0 is consistent with no serial correlation, while a number closer to 0 means
there probably is serial correlation.
33

Appendix 2: Notations, Measures & Data Sources.

Variable Proxy Explanation Units Sources of Data
Current Current asset /
Ratio CR Current liabilities Times(x) Bloomberg

Total debt /
Debt Ratio DR Total asset Percent (%) Bloomberg

Current asset / Total
asset
Current Asset CATAR Times(x) Bloomberg
to Total Asset
(Market value of equity
+ Book value of
Tobin-Q TQ liability) /Total asset Times(x) Bloomberg
Return on Earnings before

Asset interest tax / Total
ROA asset Percent (%) Bloomberg
Return on Net income / Total

Equity Equity
ROE Percent (%) Bloomberg
Return on Net Income/Total

Invested Capital
Capital ROIC Percent (%) Bloomberg
Table 1: Notations, measurements and data sources.

34

Appendix 3: List of Companies

1. Apollo Food Industries

2. British American Tobacco Malaysia
3. Carlsberg Brewery Malaysia Berhad
4. Dutch Lady
5. Fraser & Neave (F&N) Holdings Berhad
6. London Biscuit Berhad
7. Nestle Malaysia Berhad
8. PPB Group Berhad
9. Tan Chong Motor Berhad
10. UMW Holdings Berhad

35

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_____________________________________________________

UNIVERSITI TEKNOLOGI MARA

BACHELOR’S OF BUSINESS ADMINSTRATIONS (HONS.)

WORKING CAPITAL MANAGEMENT:

ABG. MUHAMMAD SYAFIQ BIN ABG. MOHTAR

An Evaluation Criteria for Project Paper Offered to all

Assessment of Final Proposal

Name of Student ABG. MUHAMMAD SYAFIQ BIN ABG. MOHTAR

Research Title: WORKING CAPITAL MANAGEMENT: THE MARKET

CRITERIA MAXIMUM MARKS

2 Problem Statement – Chapter 1 10

4 Scope of Study – Chapter 1 5

*Hypothesis / Research Questions –

6 Literature Review – Chapter 2 20

7 Research Methodology – Chapter 3 30

RAW SCORE 100

Advisor CAROLIN ANN ENCHAS

Table of Contents

2.0 LITERATURE REVIEW 18

3.0 RESEARCH METHODOLOGY 23

3.4 Variables Specification 24

Appendix 1: Definitions of Tests. 29

Appendix 2: Notations, Measures & Data Sources. 34

Appendix 3: List of Companies 35

List of Abbreviations

CATAR Current Assets to Total Assets Ratio

CCC Cash Conversion Cycle

CLTAR Current Liabilities to Total Assets Ratio

GDP Gross Domestic Product

GROSS Gross Operating Profit

ROA Return on Assets

ROC Return on Capital

ROE Return on Equity

WCM Working Capital Management.

1.2 Background of Study

Thus, its requirements are having an impact on the market valuations of a

1.3 Problem Statement

Nonetheless, working capital mechanisms on firm’s performance perspective

1.4 Research Objectives

1.4.1 Main Research Objective

1.4.2 Specific Research Objectives

1.5 Research Questions

1.5.1 Main Research Question

1.5.2 Specific Research Questions

1.6 Theoretical Framework

INDEPENDENT VARIABLES DEPENDENTS VARIABLES

Current Market Valuations

Framework 1: Theoretical Framework

Hypothesis elements are:-

1.7.1 Null Hypothesis (Ho)

1.7.2 Alternate Hypothesis (HA)

1.7.3 Main Hypothesis Statement

HA: There is significant influence between dependent variable and independent

1.7.4 Specific Hypothesis Statements

1.7.4.5 Market Valuation

HA: There is significant influence between Tobin Q and working capital

Ho2: There is no significant influence between return on equity and working