Malaysian Energy and Oil and Gas Companies: Does Working Capital Management Matter for Their Financial Performance?
A substantial number of oil and gas companies suffered liquidity problem, financial distress, or, in the worst cases, go out of business as a result of the 2014 oil price fall. Poor liquidity management is one of the key factors leading to financial distress and corporate insolvency. Managing workin...
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| Format: | Thesis |
| Language: | eng eng |
| Published: |
2022
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| Subjects: | |
| Online Access: | https://etd.uum.edu.my/11145/1/depositpermission-826913.pdf https://etd.uum.edu.my/11145/2/s826913_01.pdf |
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| Summary: | A substantial number of oil and gas companies suffered liquidity problem, financial distress, or, in the worst cases, go out of business as a result of the 2014 oil price fall. Poor liquidity management is one of the key factors leading to financial distress and corporate insolvency. Managing working capital is among the most crucial aspects of operating a company, necessitating the need for efficient working capital management. Working capital management is known to be crucial during the troubled times of business This study examines the impact that working capital management has on listed oil and gas companies' performance in Malaysia over an 11-year span from 2010 to 2020. The observation period includes the decline in crude oil prices in 2014 and the start of the COVID 19 pandemic in 2020. The study has found out that cash conversion cycle (CCC), days inventory outstanding (DIO), days sales outstanding (DSO) and liquidity (current ratio) have significant impact on the operating performance (operating profit margin) of oil and gas companies in Malaysia. On the other hand, working capital management is found to be insignificant in relation with the return to the shareholders (ROE) except days of payables outstanding (DPO). Contrary to what is typically observed, CCC is positively related to operating profit margin while DIO and DSO are negatively related with it. On the other side, there is a positive relationship between DPO and operating profit margin. The operating profit margin is also positively related with liquidity, which is the standard across all businesses. Based on the findings, it is crucial for oil and gas companies to optimally manage their working capital in order to stay in business. |
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