WORKING CAPITAL MANAGEMENT IN CZECH SMES: INTRODUCTION

In this introductory study we investigate the relationship of corporate profitability and working capital management. We intend to use a sample of Czech SMEs for the period of five years to verify existing relationship between profitability and components of working capital. The major components of working capital are inventories and receivables on the asset side and payables on the liabilities side. We want to clarify the impact of short term capital management on profitability of the companies. It is well known that the higher the liquidity of the company the lower the profitability, because the capital is invested in less productive assets - e.g. cash. However, there may be some special impact of different features of working capital in the Czech sample. To verify this hypothesis we decided to use a sample of SMEs because SMEs are much less regulated by accounting standards and they are also less subject to performance management procedures than big (or international) companies. Thus we expect that the effect of working capital management will be more visible on this sample.