evaluation on the effectiveness of working capital management from the returns and liquidity
TRANSCRIPT
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8/13/2019 Evaluation on the Effectiveness of Working Capital Management From the Returns and Liquidity
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Evaluation on the effectiveness of workingcapital management from the returns and
liquidity
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8/13/2019 Evaluation on the Effectiveness of Working Capital Management From the Returns and Liquidity
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Table of contents
1. Introduction
Narrow working capital also known as net working capital, refers to the balance of the
flow that the enterprise total assets minus the current liabilities. Due to the net
working capital is considered as non-current assets investment and the funding for the
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8/13/2019 Evaluation on the Effectiveness of Working Capital Management From the Returns and Liquidity
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settlement of non-current liabilities, so the narrow concept of flow capital mainly
means the research on enterprise s solvency and financial risk !"rintnall, #$$$%.
Therefore, the enterprise s working capital holdings and the management level are
directly related to the profitability and financial risk of the enterprise.
&enerali'ed working capital is a specific concept, and it includes the amount of liquid
assets, which are the total assets that enterprise can hold in a certain period of time
including cash and marketable securities, receivables and prepayments and various
inventory, etc. (elatively narrow working capital is an abstract concept, reflecting the
difference between current assets and current liabilities, and doesn t mean an asset of
the enterprise in a certain period. The determination of the difference completelydepends on the operating and financial conditions of the enterprise in the certain
period !&raham and )arvey, *+##%. o the working capital is the important basis of
the udgment and analysis of the enterprise capital operation and financial risk.
rom this point, it can see that the cash flow and working capital management is
closely connected with the survival and competitiveness of enterprises. /nd this essay
would take the #+ airline companies as the e0ample to analy'e the working capital
management from the data and information such as returns and liquidity, so that it can
find out whether the great working capital management can help the company achieve
more profits and economic benefits.
/s the data of some airlines such as (yanair, (oyal Dutch airlines cannot be collected
before #$$1, thus, this essay would take the date during the year of #$$1 to *+#* to
discuss about whether stock market valuation can be increased by working capital
management in airlines.
2. Analysis the working capital management of ten airlines
2.1 Brief introduction
/irlines are the transport enterprises that based on all kinds of aerospace vehicles to
provide civil aviation services for passengers and cargo. They typically require an
official certificate or approval. /irlines aircraft used can be their own, also can be
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rented, and they are able to provide services on their own, or of the partnership or
alliance with other airlines.
)owever, the airline s fiscal is complicated because its operation is very complicated.
/irlines not only need to buy new aircraft and engines from time to time but also
according to the market demand, its fleet has to make plans for a long time. The
capital flows of an airline company can be huge as there is always the peak flow of
passengers. /nd the cost for operation of the airlines can also be great since they need
lots of investments to remain the business operation, thus, the well working capital
management for the airlines is e0tremely important.
Therefore, this essay would take #+ airlines including the 2hina Eastern /irlines2hina outhern /irlines, 2ontinental /irlines, Delta /irlines, 3apan /irlines, 456
(oyal Dutch /irline, Northwest /irlines, (yanair, outhwest /irlines and 7
/irways &roup !7 /ir% as the e0ample to specifically discuss about the effectiveness
of working capital management for airlines from the returns and liquidity
perspectives.
2.2 Data and information of 10 airlines
To detailed illustrate the working capital management, here would start from
profitability including return on assets, return on equity and gross profit rate and the
liquidity, as well as price per shares.
The collected data of #+ airlines during the last *+ years is as follows8
Table # The (9/ of #+ airlines during the year of #$$1 to *+#* !7nit, :%
Airlines 9
3
9
4
9
5
9
6
9
7
9
8
9
9
0
0
0
1
0
2
0
3
0
4
0
5
0
6
0
7
0
8
0
9
1
0
1
1
12
China Eastern
Airlines
1.
6
1.
8
2.
0
2.
2
2.
3
1.
5
1.
7
2.
3
2.
7
2.
9
3.
2
4.
5
4.
6
4.
6
5.
1
4.
5
4.
7
4.
9
5.
2
5.
2China Southern
Airlines,
1.
3
1.
3
1.
5
1.
7
1.
9
2.
2
2.
3
2.
1
2.
5
2.
5
2.
6
2.
7
2.
9
3.
1
3.
4
3.
7
3.
9
4.
2
4.
5
4.
7Continental
Airlines
1.
8
1.
9
2.
3
2.
4
2.
4
2.
4
2.
6
2.
7
2.
8
2.
9
3.
1
3.
3
3.
2
3.
1
2.
8
2.
9
2.
9
3.
2
3.
3
3.
4Japan Airlines 2. 2. 2. 2. 2. 2. 3. 3. 3. 3. 4. 4. 4. 4. 4. 4. 5. 5. 5. 5.
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2 4 6 6 7 9 4 5 7 9 3 4 4 6 8 9 2 3 7 9Delta Airlines 3.
2
3.
4
3.
7
3.
6
3.
1
3.
3
3.
7
3.
9
4.
0
4.
2
4.
3
4.
5
4.
5
4.
6
4.
8
4.
9
5.
2
5.
4
5.
7
6.
1
!" #o$alDut%h Airline
2.5
2.4
2.5
2.7
2.7
3.5
3.6
3.6
3.7
3.7
3.9
4.3
4.6
4.9
5.3
5.5
5.7
5.9
6.2
6.4
&orth'est
Airlines
3.
4
3.
7
3.
7
3.
9
4.
4
4.
7
4.
8
5.
0
5.
3
5.
5
5.
7
5.
9
6.
3
6.
5
6.
2
6.
0
5.
5
5.
3
4.
9
4.
5#$anair Airlines 2.
7
2.
9
3.
4
3.
7
3.
8
4.
3
4.
4
4.
9
5.
2
4.
9
4.
6
4.
4
4.
7
4.
9
5.
2
5.
3
5.
5
5.
6
5.
8
5.
8South'est
Airlines
3.
5
3.
6
3.
7
3.
9
4.
2
4.
0
4.
5
4.
3
4.
2
4.
5
5.
2
5.
4
5.
7
5.
8
5.
9
6.
2
6.
2
6.
3
6.
4
6.
5(S Air'a$s
)roup
2.
5
2.
6
2.
6
2.
8
3.
2
3.
0
2.
9
3.
1
3.
5
3.
6
3.
7
3.
9
4.
3
4.
5
4.
7
4.
9
5.
3
5.
5
5.
7
5.
7
rom the above (9/ of the ten airlines, it can see the (9/ is increasing for most
airlines especially during the recent #+ years. pecially, the airlines in developing
countries such as the 2hina Eastern airlines, the (9/ is continuously increasing in the
ten years. Thus, it can conclude, for most airlines, the return of investment or capital
is worthy during the *+ years.
Table * The (9E of #+ airlines during the year of #$$1 to *+#* !7nit, :%
Airlines 9
3
9
4
9
5
9
6
9
7
9
8
9
9
0
0
0
1
0
2
0
3
0
4
0
5
0
6
0
7
0
8
0
9
1
0
1
1
12
China Eastern
Airlines
4.
6
4.
9
5.
2
5.
4
5.
8
5.
9
6.
3
6.
4
6.
5
6.
3
6.
2
5.
7
5.
3
5.
9
6.
2
6.
5
6.
7
7.
9
7.
3
7.
6China Southern
Airlines,
4.
2
4.
5
4.
7
4.
9
5.
3
5.
4
5.
3
5.
2
5.
0
5.
3
5.
5
5.
9
6.
2
6.
5
6.
7
6.
7
6.
9
7.
3
7.
5
7.
7Continental
Airlines
4.
9
4.
9
5.
3
5.
4
5.
4
5.
7
5.
9
5.
7
5.
8
6.
0
6.
2
6.
4
6.
5
6.
5
6.
7
6.
7
6.
9
7.
3
7.
4
7.
5Japan Airlines 3.
6
4.
0
4.
2
4.
5
4.
7
4.
9
5.
2
5.
4
5.
7
6.
0
5.
5
5.
3
5.
0
4.
6
4.
4
5.
0
5.
5
5.
7
6.
0
6.
4Delta Airlines 4.
2
4.
4
4.
7
4.
9
5.
2
5.
4
5.
7
6.
0
6.
3
6.
3
6.
5
6.
5
6.
7
6.
8
6.
9
7.
2
7.
4
7.
7
7.
9
8.
1
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!" #o$al
Dut%h Airline
4.
5
4.
7
4.
9
5.
2
5.
4
5.
7
5.
9
6.
2
6.
3
6.
5
6.
7
6.
3
6.
0
5.
8
6.
0
6.
3
6.
5
6.
9
7.
2
7.
5&orth'est
Airlines
4.
7
4.
8
4.
8
4.
5
4.
2
4.
1
3.
7
3.
6
4.
0
4.
3
4.
7
5.
2
5.
6
6.
0
6.
5
6.
9
6.
9
6.
7
6.
8
6.
9#$anair Airlines 3.
7
3.
9
4.
3
4.
5
4.
8
4.
9
5.
2
5.
4
5.
5
5.
8
5.
9
6.
2
6.
4
6.
7
6.
7
6.
4
6.
3
6.
6
6.
8
7.
0South'est
Airlines
3.
6
3.
6
3.
9
4.
1
4.
2
4.
5
4.
5
4.
5
4.
5
4.
7
5.
2
5.
5
5.
8
5.
8
5.
9
6.
3
6.
2
6.
3
6.
3
6.
5(S Air'a$s
)roup
4.
5
4.
6
4.
6
4.
8
4.
6
4.
3
4.
0
3.
9
4.
3
4.
5
4.
7
4.
9
5.
4
5.
5
5.
8
6.
1
6.
3
6.
5
6.
8
6.
8rom the (9E above, some statistics of airlines show fluctuation during the *+ years
such as the 3apan airlines and the (yanair airlines, and some airlines hold great
growth of (9E. Thus, it can be concluded that for different airlines, the benefits that
stakeholders can achieve vary a lot.
Table 1 The gross profit rate of #+ airlines during the year of #$$1 to *+#* !7nit, :%
Airlines 9
3
9
4
9
5
9
6
9
7
9
8
9
9
0
0
0
1
0
2
0
3
0
4
0
5
0
6
0
7
0
8
0
9
1
0
1
1
12
China EasternAirlines
14.
6
5
14.
9
3
15.
2
6
15.
4
8
16,
5.
8
16.
9
4
17.
3
2
18.
4
6
19.
6
5
20.
3
1
22.
2
6
25.
7
4
27.
3
6
29.
9
2
32.
2
5
36.
5
4
36.
7
6
37.
5
9
37.
6
3
39.4
5
China Southern
Airlines,
1
1.
2
3
1
4.
5
2
1
4.
7
3
1
4.
6
9
1
5.
3
2
1
5.
6
4
1
5.
2
3
1
5.
6
2
1
6.
2
3
1
6.
3
5
1
7.
2
1
1
7.
3
2
1
7.
8
9
1
8.
4
3
1
8.
6
5
1
9.
0
5
1
9.
4
9
2
1.
3
2
2
2.
4
7
24
.3
8
Continental
Airlines
1
5.
5
7
1
5.
8
9
1
8.
9
4
2
2.
4
6
2
5.
5
6
2
7.
9
8
3
0.
4
5
3
4.
5
7
3
2.
2
9
2
8.
8
5
2
4.
4
8
2
1.
5
2
1
9.
9
6
1
6.
6
3
2
0.
2
2
2
2.
3
1
2
2.
5
7
2
3.
1
5
2
3.
6
3
24
.7
2
Japan Airlines 1
6.
7
1
8.
8
1
8.
7
2
0.
2
2
2.
7
2
3.
3
2
3.
4
2
5.
5
2
5.
5
2
4.
4
2
4.
*3
2
2.
1
2
4.
3
2
6.
6
2
7.
7
2
8.
1
2
9.
9
3
0.
3
3
4.
4
34
.6
1
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2 2 9 5 3 1 9 2 2 1 7 5 8 9 4 3 1 5Delta Airlines 9.
2
3
1
0.
09
1
0.
34
1
0.
78
1
1.
42
1
1.
93
1
2.
22
1
2.
68
1
4.
47
1
5.
59
1
6.
67
1
7.
78
1
8.
09
1
9.
24
2
2.
37
2
4.
42
2
4.
65
2
5.
08
2
6.
86
27
.2
7
!" #o$al
Dut%h Airline
1
1.
5
2
1
1.
9
3
1
2.
2
6
1
2.
7
8
1
3.
1
9
1
3.
7
5
1
5.
5
8
1
6.
2
4
1
7.
7
3
1
6.
3
4
1
6.
2
7
1
4.
4
8
1
3.
3
6
1
5.
0
7
1
5.
5
2
1
6.
3
6
1
7.
7
7
1
8.
2
9
1
9.
9
6
20
.2
8
&orth'est
Airlines
2
2.
7
3
2
4.
8
5
2
3.
8
6
2
4.
5
2
2
4.
6
7
2
5.
7
9
2
7.
0
6
2
5.
5
3
2
4.
4
8
2
3.
3
2
2
2.
2
7
2
0.
1
5
1
9.
2
9
2
3.
5
6
2
5.
5
4
2
5.
8
7
2
6.
1
3
2
6.
6
6
2
7.
7
5
28
.8
2
#$anair Airlines 1
3.
7
4
1
3.
9
5
1
4.
4
3
1
4.
5
6
1
4.
8
9
1
4.
9
2
1
5.
2
7
1
5.
4
8
1
6.
5
3
1
6.
6
9
1
7.
7
1
1
8.
2
5
2
0.
3
3
2
1.
2
7
2
3.
3
5
2
4.
4
8
2
4.
7
6
2
5.
5
2
2
6.
6
4
27
.7
2
South'est
Airlines
1
5.
6
2
1
5.
9
8
1
7.
7
4
1
8.
1
6
1
8.
9
8
1
9.
2
6
2
0.
4
5
2
0.
7
4
2
2.
3
2
2
0.
2
8
2
2.
1
8
2
3.
3
4
2
4.
4
9
2
5.
6
5
2
5.
9
8
2
5.
9
8
2
6.
6
7
2
6.
9
2
2
7.
7
1
28
.6
4
(S Air'a$s
)roup
1
2.
2
8
1
3.
3
7
1
4.
7
9
1
5.
5
2
1
6.
8
7
1
7.
7
9
1
8.
8
2
1
8.
8
3
1
9.
2
5
2
1.
3
1
2
2.
1
1
2
2.
3
7
2
5.
5
3
2
6.
6
4
2
7.
5
4
2
8.
0
8
2
8.
7
5
2
9.
9
3
3
1.
1
4
33
.2
7
/s is can be seen from the table ;, the gross profit rate can increase rapid for some
airlines due to the great the cash flow. /nd for some airlines, the gross profit rate
remains stable such as 456 (oyal Dutch airline, and that may result from the bad
operation of the company.
Table ; The liquidity of #+ airlines during the year of #$$1 to *+#* !7nit, #%
Airlines 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 12
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3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1China Eastern
Airlines
1.
2
1.
5
1.
7
1.
9
1.
9
2.
3
2.
5
2.
7
2.
9
3.
0
3.
2
3.
7
3.
7
3.
6
3.
7
3.
8
3.
8
3.
8
3.
9
4.
1China Southern
Airlines,
2.
2
2.
2
2.
2
2.
4
2.
4
2.
6
2.
8
2.
8
2.
9
3.
0
3.
4
3.
3
3.
5
3.
7
3.
8
4.
2
4.
3
4.
5
5.
0
5.
2Continental
Airlines
1.
3
1.
5
1.
5
1.
7
1.
8
2.
2
2.
7
2.
9
3.
5
3.
2
3.
8
3.
7
3.
8
3.
9
4.
2
4.
3
4.
3
4.
5
4.
7
4.
9Japan Airlines 2.
5
2.
4
2.
6
2.
7
2.
9
3.
3
3.
5
3.
7
3.
8
3.
2
3.
3
3.
0
2.
8
2.
4
2.
6
2.
8
2.
9
4.
4
4.
7
4.
9Delta Airlines 2.
8
2.
7
2.
8
2.
5
3.
5
3.
4
3.
7
3.
9
3.
6
4.
2
4.
7
4.
4
4.
8
4.
7
4.
5
4.
3
4.
4
4.
6
4.
8
4.
8!" #o$al
Dut%h Airline
1.
8
1.
8
2.
0
2.
1
2.
2
1.
7
1.
7
1.
9
2.
3
2.
5
2.
7
2.
9
3.
0
3.
2
3.
4
3.
7
3.
8
3.
5
3.
5
3.
7&orth'est
Airlines
4.
1
4.
2
4.
2
4.
5
4.
2
4.
1
3.
7
3.
6
4.
0
4.
3
4.
3
4.
5
4.
7
4.
9
5.
0
5.
2
5.
4
5.
5
5.
7
5.
7#$anair Airlines 3.
2
3.
5
3.
7
4.
0
4.
5
4.
5
5.
0
5.
1
5.
4
5.
4
5.
6
6.
2
6.
2
6.
4
6.
4
6.
4
6.
7
6.
7
6.
8
7.
0South'est
Airlines
1.
1
1.
2
1.
5
1.
5
1.
6
1.
7
1.
6
1.
9
1.
8
1.
8
1.
8
2.
0
2.
0
2.
1
2.
2
2.
3
2.
4
2.
5
2.
6
2.
7(S Air'a$s
)roup
3.
9
4.
2
4.
2
4.
5
4.
6
4.
6
4.
7
4.
9
4.
9
4.
7
4.
7
4.
9
5.
0
5.
2
5.
4
6.
0
6.
2
6.
4
6.
5
6.
7rom the table ;, it can see that when the liquidity ratio is above *, it reflects the good
cash flow and debt-paying ability in some e0tent. /nd for the ten airlines, the average
liquidity is all above *, and that means for the airlines, it should en oy the good
liquidity. /nd it can also conclude that some airlines such as the 2hina outhern
airlines, the liquidity is increasing during the past decade, thus, the company%
Airlines 9
3
9
4
9
5
9
6
9
7
9
8
9
9
0
0
0
1
0
2
0
3
0
4
0
5
0
6
0
7
0
8
0
9
1
0
1
1
12
China Eastern
Airlines
7.
6
5
7.
6
5
8.
2
3
8.
5
4
8.
7
8
9.
2
7
9.
8
2
1
0.
7
1
1.
8
1
2.
2
1
4.
3
1
4.
9
1
5.
1
1
5.
4
1
7.
3
1
7.
2
1
8.
3
1
8.
9
1
8.
9
19
.8
5
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8/13/2019 Evaluation on the Effectiveness of Working Capital Management From the Returns and Liquidity
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4 9 1 2 8 7 3 6 7 5 9 9China Southern
Airlines,
9.
6
5
1
0.
94
1
0.
78
1
1.
41
1
1.
43
1
1.
65
1
2.
88
1
2.
87
1
2.
95
1
2.
43
1
2.
46
3.
3
1
3.
25
1
3.
77
1
4.
12
1
4.
25
1
4.
63
4.
5
1
5.
03
15
.2
7
Continental
Airlines
9.
3
4
1
0.
4
2
1
1.
6
5
1
2.
3
8
1
8.
7
3
2
0.
7
6
2
1.
2
0
1
8.
9
3
1
6.
2
2
1
4.
2
5
1
3.
4
2
1
7.
7
2
2
3.
8
6
2
3.
9
4
2
4.
2
8
2
4.
3
7
2
4.
3
5
2
4.
5
1
2
4.
7
3
24
.9
2
Japan Airlines 5.
5
1
6.
7
8
9.
7
3
9.
7
7
1
0.
2
6
1
6.
7
9
1
9.
2
8
2
0.
2
4
2
3.
3
7
2
5.
5
9
2
7.
7
4
3
0.
3
2
2
8.
8
6
2
6.
6
4
2
4.
4
3
2
2.
2
9
2
5.
5
3
2
7.
7
4
2
9.
9
2
30
.3
6
Delta Airlines 9.
8
1
1
0.
1
3
1
1.
4
3
1
5.
5
2.
1
5.
5
2
1
5.
5
2
1
5.
3
4
1
7.
8
9
1
7.
8
9
1
6.
6
7
1
6.
6
3
1
8.
9
5
1
8.
9
5
2
0.
2
2
2
0.
3
1
1
9.
9
4
2
0.
8
9
2
1.
3
7
2
1.
3
4
21
.4
6
!" #o$al
Dut%h Airline
1
2.
2
6
1
3.
8
7
1
3.
0
9
1
4.
1
5
1
4.
2
7
1
5.
5
8
1
5.
6
9
1
7.
7
2
1
8.
8
3
1
9.
9
5
2
0.
2
7
2
2.
2
8
1
9.
9
4
1
9.
3
2
1
9.
9
8
2
1.
2
2
1
9.
4
8
2
0.
2
5
2
1.
3
7
22
.4
8
&orth'est
Airlines
1
4.
1
3
1
4.
2
7
2
0.
2
5
2
3.
3
9
2
7.
7
8
3
0.
3
8
3
0.
9
4
2
6.
6
2
1
8.
8
7
1
9.
9
5
1
9.
9
5
2
0.
2
1
2
0.
3
4
2
1.
2
9
2
1.
1
7
1
9.
9
4
2
0.
5
3
2
0.
6
8
2
1.
7
5
21
.7
7
#$anair Airlines 1
3.
2
2
1
3.
5
7
1
3.
7
9
1
4.
0
4
1
4.
5
9
1
4.
5
3
1
5.
2
1
1
5.
1
7
1
5.
4
8
1
5.
4
9
1
5.
6
2
1
6.
2
7
1
6.
2
9
1
6.
4
7
1
6.
4
5
1
6.
4
9
1
6.
7
8
1
6.
7
9
1
6.
8
2
17
.2
5
South'est
Airlines
9.
8
1
1.
1
1.
9.
6
9.
9
1
0.
1
1.
1
2.
1
3.
1
3.
1
4.
1
5.
1
6.
1
4.
1
7.
1
8.
2
0.
2
1.
2
2.
23
.3
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7 2
4
2
5
7 2 1
4
2
7
2
5
3
6
5
8
4
5
5
9
6
2
4
9
7
8
8
5
2
7
2
6
3
9
5
(S Air'a$s
)roup
1
2.2
8
1
3.3
7
1
3.3
9
1
4.5
3
1
4.4
3
1
7.7
5
1
8.8
4
1
9.7
8
2
0.0
5
2
1.1
9
2
2.9
8
2
2.7
6
2
4.4
2
2
8.8
6
1
5.7
3
1
3.7
6
1
5.8
9
1
6.4
2
1
7.2
8
19
.28
The share price can well reflect the management and operation ability of the company
to some e0tent. /s is shown in table =, some airlines en oy the good operation ability
such as continental airlines and the stocks have value space. ?hile the airlines such as
7 airways group, the share price is unstable, which reflects poor management and
investment strategy of the company.
3. Regression analysis of the ten airlines
To specifically find out the factors including gross profit rate, the (9/, the (9E, the
liquidity and the share price that act on the working capital management, here would
use the regression method.
/nd it the regression evaluations, it would take the gross profit rate as the dependent
factors. ince this essay is to e0amine the whether the firms in the airline industry
sector can increase their stock market valuation through effective working capital
management, the working capital management is closely related to the profitability
and liquidity. /nd the liquidity can be smooth for a rapid growing company which is
hard to reflect the management ability of the enterprise. or the gross profit rate, it is a
measure of profitability which is usually e0pressed in percentage. @n the economic
meaning, the higher the gross profit rate is, the higher the profitability of the
enterprises would be, and the ability of controlling the cost can be stronger. Thus, it is
better to take gross profit rate as the dependent factors since the gross profit rate can
change much.
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igure # validity of the regression/s is showing in figure #, the sig shows +.$$$ and the df shows A#, thus , it reflects
that taking the gross profit rates as the dependent variable, which represents the
returns of the airlines and the other factors as the independent variables, the regression
method used by these variable is effective and valid here.
igure * (elation of liquidity and gross profit rate
/s is shown in the figure #, the gross profit rate is growing with the liquidity. The
liquidity refers to assets which can be reali'ed at a reasonable price smoothly, it is a
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kind of investment by the time scales !the time needed for selling% and price scale
!price discount compared with the fair market%, and the relationship between the
5iquidity of stock is greater than the real estate. o to find out the relations of
liquidity and gross profit rate, it can decide whether the liquidity is the main factor
that affects the profitability of airlines. /nd in the figure *, it can be concluded that
the liquidity of these airlines are directly related the profitable of the companies.
igure 1 (elation of share price and gross profit rate
rom the figure 1, it can see that share price goes smoothly with the gross profit rate.
That is, it is hard to use the share price to predict the profitability of the airlines. tock
price is to point to the price of the stock trading in the securities market. / lot of
factors can act on the share price such as political factors, economic factors and legal
factors. Thus, to use the share price to decide the profitability or even management
ability of the airlines is not suitable. o from the figure 1, it can be concluded that it is
hard to link the share price which may represents the share market valuation in some
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8/13/2019 Evaluation on the Effectiveness of Working Capital Management From the Returns and Liquidity
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e0tent with the profitability of these airline companies. Thus, share price would not be
the main factor that acts on the capital management ability of the airlines.
igure ; (elation of (9E and gross profit rate
/s is shown in figure ;, the gross profit rate en oys direct relation with the (9E.
The (9E is the percentage of net income and average shareholders equity and it is
also the percentage of the company s after-ta0 profit divided by net assets. This
indicator reflects the shareholders equity returns level, and can be used to measure
the efficiency of companies by their own capital. @f the (9E is higher, the investment
benefits would be higher. /nd from the figure ;, it can see the stakeholders can get
great economic benefits as the gross profit rate grows. /nd this would attract more
investors and investment. Thus, the market share valuation would go up. That means
the (9E can be directly related to the market share valuation.
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igure = (elation of (9/ and gross profit rate
rom the figure =, it can see that the (9/ goes the opposite way of the gross profit
rate. @n this case, it also can use the (9/ to predict the gross profit rate. The lower the
(9/ is, the higher the gross profit rate would be. That means the profitability of the
airlines would be great. rom this aspect, better profitability reflects great working
capital management ability in airlines. Thus, the factor of (9/ to some e0tent also
can act on the capital management ability which is related to the share marketvaluation of airlines.
. !onclusion
rom the above graph, it can see that the gross profit rate is closed related to the
liquidity and the (9E. That means, the liquidity and (9E are higher, the company
can get more profits or returns, which reflects the better capital management ability
and operation ability. /t the same time, profit rata has not much to do with the share
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price. That because the share price is directly related to various variables such as
market factors, political factors and national economic factors, so it is hard to ust use
the share price to reflect the overall profitability of the companies. @n addition, it also
can be seen that the (9/ greatly affect the gross profit rate, if the (9/ is bad, that
means the profit rate of the company could not perform very well. Thus, if the airline
company wants to achieve better working capital management, it should well control
the (9E and the liquidity.
That is, the (9E and liquidity reflect better working capital management. /nd in the
figures above, it can also conclude that better (9E and liquidity reflect great share
market valuation. Thus it is can be concluded that the claim that the market sharevaluation of airlines can be increased through working capital management.
Reference
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inan%e E i/en%e ro the iel/,Journal o inan%ial e%ono i%s, 15 3-, pp. 479*
480.
!iu, C. , 2007-. An e:a ple o e%ono i% lo ali;ation E aluation o (
inan%ial status, Journal o , ., 2009-. he internationalisation strate ies o Airline ir s ,
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@ ir lisa, A in>e i iBte , , 2008-. he inte rate/ e aluation o the a%ro
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