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AN EVALUATION OF THE ROLE OF WORKING CAPITAL SYSTEM ON THE FIRMS PERFORMANCE

  1. INTRODUCTION

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.

  1. 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.

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