Abstrakt:
A number of studies indicate that the decision on the level of working capital
affects business performance. Managing optimal working capital brings businesses
sustained reduction of working capital, improves liquidity and increases profitability
through effectively managed capital. The aim of this paper is to conduct empirical
research of Czech companies on the relationship between working capital and the
performance of a company. An OLS model is used that can calculate quadratic
regression for calculating the optimum amount of working capital. Models are created
that describe the dependency of earnings on the components that determine working
capital. By deriving the quadratic function of performance, an inflection point is found,
indicating a theoretical net trade cycle of 134 days for Czech companies with inventory
and 70 days for Czech companies with no inventory. However, there is a level of working
capital at which a higher working capital begins to be negative in terms of profitability
due to the additional interest expenses and, hence, the higher probability of bankruptcy
and credit risk of firms. Thus, firm managers should aim to keep as close to the optimal
level as possible and try to avoid deviations from it that destroy profitability.
