Evaluation on the Effectiveness of Working Capital Management From the Returns and Liquidity

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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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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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


6/15

!" #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.


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


7/15

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


8/15

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.


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


9/15

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


10/15

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.


11/15

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


12/15

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


13/15

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.


14/15

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


15/15

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.

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+rintnall, ", 1999-, #esear%h un/in issues or pu li% a/ inistration , Journal

o u li% A airs E/u%ation, 27 1-, pp. 145*149.

)raha , J.#, ar e$, C.#, 2011-. he theor$ an/ pra%ti%e o %orporate

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 ,

Journal o E%ono i% an/ +usiness Stu/ies, 45 1-. pp.477*483."%!ane$, E.J. 2012-. +usiness ?inan%e heor$ an/ ra%ti%e 9th e/ition, ?

renti%e all.

@ ir lisa, A in>e i iBte , , 2008-. he inte rate/ e aluation o the a%ro

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http://www.jstor.org/stable/10.2307/40215432http://www.sciencedirect.com/science/article/pii/S0304405X01000447http://www.sciencedirect.com/science/article/pii/S0304405X01000447http://www.jstor.org/stable/10.2307/4540443http://www.tandfonline.com/doi/abs/10.1080/14765280902847627http://www.sciencedirect.com/science/article/pii/S0304405X01000447http://www.sciencedirect.com/science/article/pii/S0304405X01000447http://www.jstor.org/stable/10.2307/4540443http://www.tandfonline.com/doi/abs/10.1080/14765280902847627http://www.jstor.org/stable/10.2307/40215432

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Evaluation on the Effectiveness of Working Capital Management From the Returns and Liquidity