An Analysis of the Relationship Between Net Working Capital and Firm Financial Performance
Open Access
Author:
Howe, Maria
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
Gregory Robert Pierce, Thesis Supervisor Brian Spangler Davis, Thesis Honors Advisor
Keywords:
net working capital working capital operating performance corporate finance regression correlation confidence interval
Abstract:
Academia has continued to profess the importance of working capital through qualitative evidence. With that said, the quantitative body of existing research is still somewhat limited. This paper analyzes the relationships between net working capital and four measures of firm financial performance: net sales, normalized operating income, operating cash flow, and stock price. Regressions are run and correlations are determined for each factor versus net working capital. Data derives from three indices: S&P 500, S&P 500 Retailing, and S&P 500 Information Technology. Assessing the significance of the relationships, the study has considerable implications for corporate finance and stock selection.
