Abstract
The purpose of this study is to analyze the adequacy of a working capital management normative model, in terms of profitability, liquidity and solvency. Through an empirical and analytical research, the analysis of variance results (ANOVA) of a sample containing financial information from 621 healthcare insurance companies for the year 2006, show that different working capital structures are associated with different levels of profitability, liquidity and solvency, suggesting a preference order different from the one theorized by Fleuriet / Braga. The results indicate that a certain structure – where financial current assets exceed onerous current liabilities, and cyclical current assets exceed cyclical current liabilities – is associated with higher levels of profitability, liquidity and solvency. In addition, the study reiterates the importance of efficient management of working capital to the performance and survival of healthcare insurance companies.
Highlights
The profitability represented by operating profit margin (i.e., 2=0.30) and the liquidity measured by working capital over net sales (i.e., 2=0.21) indicated strong effects (Cohen, 1988)
Our analysis suggests that the Fleuriet model can provide managers with a useful visualization of working capital financing structure of their businesses
The results suggest that the Fleuriet model can be helpful in the economic regulation of the sector, allowing regulators to concentrate their attention in companies with poor working capital financing structures
Summary
SUMMARY: The purpose of this study is to analyze the adequacy of a working capital management normative model, in terms of profitability, liquidity and solvency. The purpose of this article is to empirically examine the adequacy of a normative model, proposed by Fleuriet, Kehdy and Blanc (1978, 2003) and the type of working capital financing structures (Braga, 1991; Marques e Braga, 1995), in terms of profitability , liquidity and solvency
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