The working capital describes the short-term financial position and focus on cash flow and the actual inflow and outflow of money in the company. Working capital is part of the company's financing and consists of the company's current assets and current liabilities. There are resources that are used in the daily activity and can be optimized. The more effective they are in circulation, the higher value they create. The control of working capital is called Working Capital Management and has its basis in the company’s Working Capital Policy. This means that the policy is the decisions and management describes how the company will practice it.
Small businesses, which constitute the majority of Sweden's corporate structure, are often totally dependent on their profits to develop and grow. They have in many cases more difficult access to external capital for investment and are therefore dependent on the ability of self-financing and optimization of the capital tied up in business.
The study focuses on small companies in the manufacturing sector and examines if the Working Capital Policy has a relationship to profitability.
The study concludes that among companies that have an aggressive policy there is no relationship between the Working Capital Policy and profitability. A company that has a defensive policy has a very weak negative relationship between the Working Capital Policy and profitability, and that the relationship may be due to chance. A weaker link between the Working Capital Policy and profitability are found when the entire sample is studied as a single entity without a breakdown between aggressive and defensive Working Capital Policy, this may also be due to chance.
A review and analysis of empirical data in the study notes that the Working Capital Policy that companies are using may be a prerequisite for being able to operate rather than a tool to maximize profitability. Approximately the same results have been found in another Swedish study, other results have been found in different countries, but these results may be influenced by how well the structures of the economies of these countries are developed.