The Role of Working Capital Management in Automobile Industry in Iran

ABSTRACT: Working capital management plays a significant role in automobile industry. Working capital management is closely linked with the management of cash. And, it related to short-term decisions that not taken on the same basis as capital investment decisions. In This paper, we analyse the efficiency of working capital management on automobile industry in Iran for the period 2000 to 2009. For this purpose, our research involves analysis of 8 automobile companies in Tehran Stock Exchange. The results indicate that sundry debtors and inventory have a positive relationship with working capital. Also, dividends and tax liability are positively associated with working capital. Furthermore, the correlation between raw material purchase and working capital is positive, which show that the companies are not used mostly their internal resources and have a good relationship with their suppliers. Overall, our results indicate that the working capital management has a significant impact on profitability of the firms.