The effect of account receivable and inventory on return on assets of Chinese companies

Abstract

Working capital management become more and more vital and widely adapt in order to promote the performance of companies, which deal with the relationship between current assets and current liabilities, during the economic globalization and information age. It is difficult for companies to remain business sustainability and cause the profitability fluctuates. The objective of this study is to resolve the relationship between working capital management and companies’ profitability. This study investigates the effects of account receivable and inventory on return on assets of Chinese public companies for the period 1990 - 2017. The historic accounting data is selected from CSMAR database. The research uses multiple pregression to analyze data. The results of the study shows that account receivable and inventory have a significant negative relationship with return on assets. This implies that managers can make more value and better performance for the company by means of reducing account receivable and inventory.