The Relationship between Working Capital and Profitability of Companies Operating in the Food Industry in the Czech Republic

Abstract

The aim of this article is to determine the relationship between working capital and profitability of companies operating in the food industry in the Czech Republic and then find out how working capital affects the profitability of these companies from 2009 to 2019. In the first part of the research we estimate the links between working capital measured by variables such as cash conversion cycle, current assets ratio, current liabilities ratio, working capital ratio and corporate profitability measured by return on sales. In the next part of the research, we estimate the effect of working capital measured by variables such as cash conversion cycle, current assets ratio, current liabilities ratio, working capital ratio on corporate profitability measured by return on sales. Correlation analysis and the GMM method will be used to determine the relationship between working capital and the profitability of companies and how working capital affects the profitability of these companies. The results of the correlation analysis showed statistically significant links between return on sales and variables such as cash conversion cycle, current assets ratio, current liabilities ratio and working capital ratio. The results of the GMM method showed a statistically significant effect of variables such as cash conversion cycle, current assets ratio, current liabilities ratio and working capital ratio on the profitability of companies measured by the return on sales indicator. All mitigated effects have been demonstrated for companies operating in the food industry as a whole, as well as in the production of food products and beverages.