MBA – Oil & Gas Management

2022-2024

Semester I

Financial Management
Assignment – 2

by
Shaikh Mohd Badrul Islam
SAP ID: 500110741
 Question 1
A firm's success and growth are directly impacted by its liquidity and
profitability. Enumerate the role of working capital in a firm's liquidity and
profitability.
Note: Answer length should be approximately 600 words.

Answer:
Any business's profitability, liquidity, and solvency are essential to its success. A
business's capacity to serve effectively calculate on its position of liquidity. The
connection between working capital and profitability has been the subject of
multitudinous studies in the history. The findings demonstrated that poor fiscal
performance is related to inordinate force and receivables investment. They set
up a negative relationship between Return on means and Inventory development
and Cycle of cash conversion by opting the days of collection, days of payment,
days that force turns into deals, and eventually the cash conversion cycle, the
current study is intended to determine the direct influence of working capital on
profitability. Using information from 15 US trading companies from 2015 to
2019, this study investigates the relationship between profitability and working
capital. First, there's a negative relationship between profitability and average
collection period; the lower the average collection period, the advanced the
profitability; this suggests that a reduction in the number of days a establishment
must stay previous to actually entering payment from deals has a positive impact
on the establishment's profitability. Second, the average payment period and
profitability have a largely significant positive association. This suggests that a
company is more profitable the longer it pays its creditors. According to the
results of the retrogression analysis, the model's R- squared value is0.584,
meaning that the independent variables regard for 58.4 of the variation in the
dependent variable Net Profitability.

The fat of current means (similar as cash on hand, borrowers, stock, etc.) over
current scores is appertained to as a company's working capital. Working capital
does have an impact on a company's liquidity and profitability. The liquidity of
the company increases as working capital increases. still, because current means
have a poor rate of return, the profit periphery of the business decreases as
working capital is raised. As an illustration, adding a company's force enhances
its liquidity, but because the stock is held on hand, the profitability decreases. On
the other side, a lack of working capital makes it delicate for the company to
conduct diurnal operations. As a result, the working capital needs to be set up so
that profitability and liquidity are kept under check. Businesses need working
capital on a diurnal base because they need a harmonious sluice of cash to pay
bills on time, cover unlooked-for charges, and buy raw accoutrements for
manufacturing goods.

Effective working capital operation contributes to maintaining a business's

smooth operations and can enhance profit and profitability. force operation,
accounts delinquent and outstanding operation, and working capital operation
are all included. Controlling the working capital operation and assuring its orderly
functioning, lowering the cost of capital used for working capital, and adding
the returns on current asset investments are the major pretensions of working
capital operation.

Working capital is a simple conception to grasp because it's related to a person's

cost of living and can thus be comprehended in a further individualised way.
People must recover the plutocrat that's owed to them and keep away a set
quantum each day to pay their bills and other normal scores.

Working capital is a constantly used index of a company's productivity, liquidity,

and general health. It's a reflection of the issues of a variety of business
operations, similar as raising profit, debt operation, force operation, and
supplier payments. This is owing to the fact that it consists of supplies,
receivables and accounts outstanding cash, debt that's incompletely due within a
time, and other brief accounts.