AN EVALUATION OF THE ROLE OF WORKING CAPITAL SYSTEM ON THE FIRMS PERFORMANCE
As a result of that the dimensions of enterprises change from local to national and from national to international along with the competition exhibited in marketing environment in the globalizing world, the management method and efficiency of working capital, which are important significantly for companies to continue their life, has been more and more important. Through management of working capital, some issues, such as, how much investment will be made for which entity, and through which resources these investments will be financed, are intended to be determined. In this context, it has been investigated and discussed for years that whether significant relationship between management of working capital and firm performance have existed. It is predictable that the companies aiming at expanding constantly and obtaining maximum profitability can accomplish their goals with a strong financing and quality management. Acceptance of effective and efficient management understanding in terms of management of working capital will no doubt provide a positive contribution to the performance of company. An effective management of working capital will benefit not only to enterprise but also country’s economy. In this context, SMEs, considered as backbone of the dynamic and immersive elements of economy are very important since they contribute to development of country through their flexible structures and harmonizing to changing conditions . This importance has been perceived even better in the developed or developing countries especially in the countries like Turkey, faced with economic crisis from time to time. Ref. claimed that an effective working capital would make increase the value of the company. Similarly, pointed out in their study that a strong relationship existed between management of working capital and performance of company. In respect of SMEs, emphasized in his recent study the importance of management of working capital in terms of financial performance in SMEs to be increased. On the other hand, determined that SMEs often used equity, their capacity utilization rates were low, and they couldn’t provide sufficient employment. Taking into account the importance of management of working capital and concept of working capital for SMEs, the main purpose of our study is measurement and revelation of the possible relationship between company’s performance and management of working capital in terms of the EIST-SME industry index quoted companies.
- WORKING CAPITAL MANAGEMENT
In the most common sense, working capital can be expressed as sum of owned assets and current assets. In other words, working capital is used to afford short-term expenses, such as, raw materials, labor, general administrative expenses, tax, maintenance and repair expenses, energy and insurance expenses emerged during the period starting from the establishment of a business to the extend of going into operation and maintaining its activities. Working capital, also known as business capital, exhibits great importance in order to afford company to work with full capacity, continue production uninterruptedly, decrease the risk of liquidity, and not being in difficult situations financially in crisis situations . We witness management of working capital at least once within the one accounting period of enterprise as the efficiently and effectively administration of the assets that are convertable to cash. These current assets consist of money, securities, stocks, receivables and other current assets. In terms of management of working capital, dormant business capital leads to reduction of profitability and accordingly working capital deficit leads to the risk of unpaid debts. Failing to manage the working capital effectively leads to some negative consequences, These are as follows The current assets of every company has a cost.