Working Capital Management Practices and Financial Performance of Large Trading Corporations in Mandaluyong City, Philippines

Abstract

The efficient management of working capital is a critical aspect of corporate financial management that significantly influences a firm's overall financial performance. While prior studies have explored broader contexts such as cross-industry and national-level analyses within developing countries, there is limited to no research specifically focused on the working capital management practices and financial performance of large trading corporations in Mandaluyong City, Philippines. This study determines the working capital management practices and financial performance in terms of liquidity and profitability of large trading corporations in Mandaluyong City, Philippines. Moreover, the relationship between liquidity and profitability was examined to determine how well the companies manage short-term financial stability while maintaining profitability. The researcher employed a descriptive quantitative research design, with 34 large trading distributors and wholesaler corporations as respondents. Data were gathered using a structured questionnaire and ratio analysis of audited financial statements. Furthermore, descriptive statistics and simple correlational analysis were employed. This study is underpinned by cash conversion cycle theory, and risk and return theory. Findings reveal that the majority of these companies have a considerably high liquidity ratio (above 2.00 current ratio). In terms of profitability, most of the respondents have an average return on assets ratio of 10%-15%, which is considerably good. Lastly, there is a strong negative relationship between liquidity and profitability. The results imply that companies with higher liquidity experience lower profitability, or vice versa. The study recommends that companies with a high liquidity ratio may invest their excessive liquid or current assets (such as cash) in fixed assets, which may lead to an increase in profitability as new equipment is purchased to contribute to increased production and profitability.  Thus, management should always consider the delicate relationship between liquidity and profitability, and how their roles contribute to the company’s overall financial performance.