Evaluation on the effectiveness of working capital management from the returns and liquidity

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

settlement of non-current liabilities, so the narrow concept of flow capital mainly means the research on enterprise s solvency and financial risk !"rintnall, #$$$%. Therefore, the enterprise s working capital holdings and the management level are directly related to the profitability and financial risk of the enterprise. &enerali'ed working capital is a specific concept, and it includes the amount of liquid assets, which are the total assets that enterprise can hold in a certain period of time including cash and marketable securities, receivables and prepayments and various inventory, etc. (elatively narrow working capital is an abstract concept, reflecting the difference between current assets and current liabilities, and doesn t mean an asset of the enterprise in a certain period. The determination of the difference completely depends on the operating and financial conditions of the enterprise in the certain period !&raham and )arvey, *+##%. ,o the working capital is the important basis of the -udgment and analysis of the enterprise capital operation and financial risk. .rom this point, it can see that the cash flow and working capital management is closely connected with the survival and competitiveness of enterprises. /nd this essay would take the #+ airline companies as the e0ample to analy'e the working capital management from the data and information such as returns and liquidity, so that it can find out whether the great working capital management can help the company achieve more profits and economic benefits. /s the data of some airlines such as (yanair, (oyal Dutch airlines cannot be collected before #$$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

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 /irlines 2hina ,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 China Eastern Airlines China Southern Airlines, Continental Airlines Japan Airlines 1. 6 1. 3 1. 8 2. 9 4 1. 8 1. 3 1. 9 2. 9 5 2. 0 1. 5 2. 3 2. 9 6 2. 2 1. 7 2. 4 2. 9 7 2. 3 1. 9 2. 4 2. 9 8 1. 5 2. 2 2. 4 2. 9 9 1. 7 2. 3 2. 6 3. 0 0 2. 3 2. 1 2. 7 3. 0 1 2. 7 2. 5 2. 8 3. 0 2 2. 9 2. 5 2. 9 3. 0 3 3. 2 2. 6 3. 1 4. 0 4 4. 5 2. 7 3. 3 4. 0 5 4. 6 2. 9 3. 2 4. 0 6 4. 6 3. 1 3. 1 4. 0 7 5. 1 3. 4 2. 8 4. 0 8 4. 5 3. 7 2. 9 4. 0 9 4. 7 3. 9 2. 9 5. 1 0 4. 9 4. 2 3. 2 5. 1 1 5. 2 4. 5 3. 3 5. 5. 2 4. 7 3. 4 5. 12

2 Delta Airlines 3. 2 !" #o$al Dut%h Airline &orth'est Airlines #$anair Airlines 2. 5 3. 4 2. 7 South'est Airlines (S Air'a$s )roup 3. 5 2. 5

4 3. 4 2. 4 3. 7 2. 9 3. 6 2. 6

6 3. 7 2. 5 3. 7 3. 4 3. 7 2. 6

6 3. 6 2. 7 3. 9 3. 7 3. 9 2. 8

7 3. 1 2. 7 4. 4 3. 8 4. 2 3. 2

9 3. 3 3. 5 4. 7 4. 3 4. 0 3. 0

4 3. 7 3. 6 4. 8 4. 4 4. 5 2. 9

5 3. 9 3. 6 5. 0 4. 9 4. 3 3. 1

7 4. 0 3. 7 5. 3 5. 2 4. 2 3. 5

9 4. 2 3. 7 5. 5 4. 9 4. 5 3. 6

3 4. 3 3. 9 5. 7 4. 6 5. 2 3. 7

4 4. 5 4. 3 5. 9 4. 4 5. 4 3. 9

4 4. 5 4. 6 6. 3 4. 7 5. 7 4. 3

6 4. 6 4. 9 6. 5 4. 9 5. 8 4. 5

8 4. 8 5. 3 6. 2 5. 2 5. 9 4. 7

9 4. 9 5. 5 6. 0 5. 3 6. 2 4. 9

2 5. 2 5. 7 5. 5 5. 5 6. 2 5. 3

3 5. 4 5. 9 5. 3 5. 6 6. 3 5. 5

7 5. 7 6. 2 4. 9 5. 8 6. 4 5. 7

9 6. 1 6. 4 4. 5 5. 8 6. 5 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 China Eastern Airlines China Southern Airlines, Continental Airlines Japan Airlines 4. 6 4. 2 4. 9 3. 6 Delta Airlines 4. 2 9 4 4. 9 4. 5 4. 9 4. 0 4. 4 9 5 5. 2 4. 7 5. 3 4. 2 4. 7 9 6 5. 4 4. 9 5. 4 4. 5 4. 9 9 7 5. 8 5. 3 5. 4 4. 7 5. 2 9 8 5. 9 5. 4 5. 7 4. 9 5. 4 9 9 6. 3 5. 3 5. 9 5. 2 5. 7 0 0 6. 4 5. 2 5. 7 5. 4 6. 0 0 1 6. 5 5. 0 5. 8 5. 7 6. 3 0 2 6. 3 5. 3 6. 0 6. 0 6. 3 0 3 6. 2 5. 5 6. 2 5. 5 6. 5 0 4 5. 7 5. 9 6. 4 5. 3 6. 5 0 5 5. 3 6. 2 6. 5 5. 0 6. 7 0 6 5. 9 6. 5 6. 5 4. 6 6. 8 0 7 6. 2 6. 7 6. 7 4. 4 6. 9 0 8 6. 5 6. 7 6. 7 5. 0 7. 2 0 9 6. 7 6. 9 6. 9 5. 5 7. 4 1 0 7. 9 7. 3 7. 3 5. 7 7. 7 1 1 7. 3 7. 5 7. 4 6. 0 7. 9 7. 6 7. 7 7. 5 6. 4 8. 1 12

!" #o$al Dut%h Airline &orth'est Airlines #$anair Airlines

4. 5 4. 7 3. 7

4. 7 4. 8 3. 9 3. 6 4. 6

4. 9 4. 8 4. 3 3. 9 4. 6

5. 2 4. 5 4. 5 4. 1 4. 8

5. 4 4. 2 4. 8 4. 2 4. 6

5. 7 4. 1 4. 9 4. 5 4. 3

5. 9 3. 7 5. 2 4. 5 4. 0

6. 2 3. 6 5. 4 4. 5 3. 9

6. 3 4. 0 5. 5 4. 5 4. 3

6. 5 4. 3 5. 8 4. 7 4. 5

6. 7 4. 7 5. 9 5. 2 4. 7

6. 3 5. 2 6. 2 5. 5 4. 9

6. 0 5. 6 6. 4 5. 8 5. 4

5. 8 6. 0 6. 7 5. 8 5. 5

6. 0 6. 5 6. 7 5. 9 5. 8

6. 3 6. 9 6. 4 6. 3 6. 1

6. 5 6. 9 6. 3 6. 2 6. 3

6. 9 6. 7 6. 6 6. 3 6. 5

7. 2 6. 8 6. 8 6. 3 6. 8

7. 5 6. 9 7. 0 6. 5 6. 8

South'est Airlines (S Air'a$s )roup

3. 6 4. 5

.rom 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 China Eastern Airlines 1 4. 6 5 China Southern Airlines, 1 1. 2 3 Continental Airlines 1 5. 5 7 Japan Airlines 1 6. 7 9 4 1 4. 9 3 1 4. 5 2 1 5. 8 9 1 8. 8 9 5 1 5. 2 6 1 4. 7 3 1 8. 9 4 1 8. 7 9 6 1 5. 4 8 1 4. 6 9 2 2. 4 6 2 0. 2 9 7 1 6, 5. 8 1 5. 3 2 2 5. 5 6 2 2. 7 9 8 1 6. 9 4 1 5. 6 4 2 7. 9 8 2 3. 3 9 9 1 7. 3 2 1 5. 2 3 3 0. 4 5 2 3. 4 0 0 1 8. 4 6 1 5. 6 2 3 4. 5 7 2 5. 5 0 1 1 9. 6 5 1 6. 2 3 3 2. 2 9 2 5. 5 0 2 2 0. 3 1 1 6. 3 5 2 8. 8 5 2 4. 4 0 3 2 2. 2 6 1 7. 2 1 2 4. 4 8 2 4. *3 0 4 2 5. 7 4 1 7. 3 2 2 1. 5 2 2 2. 1 0 5 2 7. 3 6 1 7. 8 9 1 9. 9 6 2 4. 3 0 6 2 9. 9 2 1 8. 4 3 1 6. 6 3 2 6. 6 0 7 3 2. 2 5 1 8. 6 5 2 0. 2 2 2 7. 7 0 8 3 6. 5 4 1 9. 0 5 2 2. 3 1 2 8. 1 0 9 3 6. 7 6 1 9. 4 9 2 2. 5 7 2 9. 9 1 0 3 7. 5 9 2 1. 3 2 2 3. 1 5 3 0. 3 1 1 3 7. 6 3 2 2. 4 7 2 3. 6 3 3 4. 4 34 .6 1 24 .7 2 24 .3 8 39 .4 5 12

2 Delta Airlines 9. 2 3

2 1 0. 0 9

9 1 0. 3 4 1 2. 2 6 2 3. 8 6 1 4. 4 3 1 7. 7 4 1 4. 7 9

5 1 0. 7 8 1 2. 7 8 2 4. 5 2 1 4. 5 6 1 8. 1 6 1 5. 5 2

3 1 1. 4 2 1 3. 1 9 2 4. 6 7 1 4. 8 9 1 8. 9 8 1 6. 8 7

1 1 1. 9 3 1 3. 7 5 2 5. 7 9 1 4. 9 2 1 9. 2 6 1 7. 7 9

9 1 2. 2 2 1 5. 5 8 2 7. 0 6 1 5. 2 7 2 0. 4 5 1 8. 8 2

2 1 2. 6 8 1 6. 2 4 2 5. 5 3 1 5. 4 8 2 0. 7 4 1 8. 8 3

2 1 4. 4 7 1 7. 7 3 2 4. 4 8 1 6. 5 3 2 2. 3 2 1 9. 2 5

1 1 5. 5 9 1 6. 3 4 2 3. 3 2 1 6. 6 9 2 0. 2 8 2 1. 3 1 1 6. 6 7 1 6. 2 7 2 2. 2 7 1 7. 7 1 2 2. 1 8 2 2. 1 1

7 1 7. 7 8 1 4. 4 8 2 0. 1 5 1 8. 2 5 2 3. 3 4 2 2. 3 7

5 1 8. 0 9 1 3. 3 6 1 9. 2 9 2 0. 3 3 2 4. 4 9 2 5. 5 3

8 1 9. 2 4 1 5. 0 7 2 3. 5 6 2 1. 2 7 2 5. 6 5 2 6. 6 4

9 2 2. 3 7 1 5. 5 2 2 5. 5 4 2 3. 3 5 2 5. 9 8 2 7. 5 4

4 2 4. 4 2 1 6. 3 6 2 5. 8 7 2 4. 4 8 2 5. 9 8 2 8. 0 8

3 2 4. 6 5 1 7. 7 7 2 6. 1 3 2 4. 7 6 2 6. 6 7 2 8. 7 5

1 2 5. 0 8 1 8. 2 9 2 6. 6 6 2 5. 5 2 2 6. 9 2 2 9. 9 3

5 2 6. 8 6 1 9. 9 6 2 7. 7 5 2 6. 6 4 2 7. 7 1 3 1. 1 4 33 .2 7 28 .6 4 27 .7 2 28 .8 2 20 .2 8 27 .2 7

!" #o$al Dut%h Airline

1 1. 5 2

1 1. 9 3 2 4. 8 5 1 3. 9 5 1 5. 9 8 1 3. 3 7

&orth'est Airlines

2 2. 7 3

#$anair Airlines

1 3. 7 4

South'est Airlines

1 5. 6 2

(S Air'a$s )roup

1 2. 2 8

/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

3 China Eastern Airlines China Southern Airlines, Continental Airlines Japan Airlines 1. 2 2. 2 1. 3 2. 5 Delta Airlines 2. 8 !" #o$al Dut%h Airline &orth'est Airlines #$anair Airlines 1. 8 4. 1 3. 2 South'est Airlines (S Air'a$s )roup 1. 1 3. 9

4 1. 5 2. 2 1. 5 2. 4 2. 7 1. 8 4. 2 3. 5 1. 2 4. 2

5 1. 7 2. 2 1. 5 2. 6 2. 8 2. 0 4. 2 3. 7 1. 5 4. 2

6 1. 9 2. 4 1. 7 2. 7 2. 5 2. 1 4. 5 4. 0 1. 5 4. 5

7 1. 9 2. 4 1. 8 2. 9 3. 5 2. 2 4. 2 4. 5 1. 6 4. 6

8 2. 3 2. 6 2. 2 3. 3 3. 4 1. 7 4. 1 4. 5 1. 7 4. 6

9 2. 5 2. 8 2. 7 3. 5 3. 7 1. 7 3. 7 5. 0 1. 6 4. 7

0 2. 7 2. 8 2. 9 3. 7 3. 9 1. 9 3. 6 5. 1 1. 9 4. 9

1 2. 9 2. 9 3. 5 3. 8 3. 6 2. 3 4. 0 5. 4 1. 8 4. 9

2 3. 0 3. 0 3. 2 3. 2 4. 2 2. 5 4. 3 5. 4 1. 8 4. 7

3 3. 2 3. 4 3. 8 3. 3 4. 7 2. 7 4. 3 5. 6 1. 8 4. 7

4 3. 7 3. 3 3. 7 3. 0 4. 4 2. 9 4. 5 6. 2 2. 0 4. 9

5 3. 7 3. 5 3. 8 2. 8 4. 8 3. 0 4. 7 6. 2 2. 0 5. 0

6 3. 6 3. 7 3. 9 2. 4 4. 7 3. 2 4. 9 6. 4 2. 1 5. 2

7 3. 7 3. 8 4. 2 2. 6 4. 5 3. 4 5. 0 6. 4 2. 2 5. 4

8 3. 8 4. 2 4. 3 2. 8 4. 3 3. 7 5. 2 6. 4 2. 3 6. 0

9 3. 8 4. 3 4. 3 2. 9 4. 4 3. 8 5. 4 6. 7 2. 4 6. 2

0 3. 8 4. 5 4. 5 4. 4 4. 6 3. 5 5. 5 6. 7 2. 5 6. 4

1 3. 9 5. 0 4. 7 4. 7 4. 8 3. 5 5. 7 6. 8 2. 6 6. 5 4. 1 5. 2 4. 9 4. 9 4. 8 3. 7 5. 7 7. 0 2. 7 6. 7

.rom 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<s management ability is great. Table = The share price of #+ airlines during the year of #$$1 to *+#* !7nit, >%
Airlines 9 3 China Eastern Airlines 7. 6 5 9 4 7. 6 5 9 5 8. 2 3 9 6 8. 5 4 9 7 8. 7 8 9 8 9. 2 7 9 9 9. 8 2 0 0 1 0. 7 0 1 1 1. 8 0 2 1 2. 2 0 3 1 4. 3 0 4 1 4. 9 0 5 1 5. 1 0 6 1 5. 4 0 7 1 7. 3 0 8 1 7. 2 0 9 1 8. 3 1 0 1 8. 9 1 1 1 8. 9 19 .8 5 12

4 China Southern Airlines, 9. 6 5 1 0. 9 4 Continental Airlines 9. 3 4 1 0. 4 2 Japan Airlines 5. 5 1 6. 7 8 1 0. 7 8 1 1. 6 5 9. 7 3 1 1. 4 1 1 2. 3 8 9. 7 7 1 1. 4 3 1 8. 7 3 1 0. 2 6 Delta Airlines 9. 8 1 1 0. 1 3 !" #o$al Dut%h Airline 1 2. 2 6 &orth'est Airlines 1 4. 1 3 #$anair Airlines 1 3. 2 2 South'est Airlines 9. 8 1 3. 8 7 1 4. 2 7 1 3. 5 7 1 1. 1 1. 4 3 1 3. 0 9 2 0. 2 5 1 3. 7 9 1 1. 1 5. 5 2. 1 4. 1 5 2 3. 3 9 1 4. 0 4 9. 6 1 5. 5 2 1 4. 2 7 2 7. 7 8 1 4. 5 9 9. 9 1 1. 6 5 2 0. 7 6 1 6. 7 9 1 5. 5 2 1 5. 5 8 3 0. 3 8 1 4. 5 3 1 0. 1 2. 8 8 2 1. 2 0 1 9. 2 8 1 5. 3 4 1 5. 6 9 3 0. 9 4 1 5. 2 1 1 1. 1 2. 8 7 1 8. 9 3 2 0. 2 4 1 7. 8 9 1 7. 7 2 2 6. 6 2 1 5. 1 7 1 2.

9 1 2. 9 5 1 6. 2 2 2 3. 3 7 1 7. 8 9 1 8. 8 3 1 8. 8 7 1 5. 4 8 1 3.

1 1 2. 4 3 1 4. 2 5 2 5. 5 9 1 6. 6 7 1 9. 9 5 1 9. 9 5 1 5. 4 9 1 3.

2 1 2. 4 6 1 3. 4 2 2 7. 7 4 1 6. 6 3 2 0. 2 7 1 9. 9 5 1 5. 6 2 1 4.

8 3. 3

7 1 3. 2 5

3 1 3. 7 7 2 3. 9 4 2 6. 6 4 2 0. 2 2 1 9. 3 2 2 1. 2 9 1 6. 4 7 1 4.

6 1 4. 1 2 2 4. 2 8 2 4. 4 3 2 0. 3 1 1 9. 9 8 2 1. 1 7 1 6. 4 5 1 7.

7 1 4. 2 5 2 4. 3 7 2 2. 2 9 1 9. 9 4 2 1. 2 2 1 9. 9 4 1 6. 4 9 1 8.

5 1 4. 6 3 2 4. 3 5 2 5. 5 3 2 0. 8 9 1 9. 4 8 2 0. 5 3 1 6. 7 8 2 0.

9 4. 5

9 1 5. 0 3 15 .2 7

1 7. 7 2 3 0. 3 2 1 8. 9 5 2 2. 2 8 2 0. 2 1 1 6. 2 7 1 5.

2 3. 8 6 2 8. 8 6 1 8. 9 5 1 9. 9 4 2 0. 3 4 1 6. 2 9 1 6.

2 4. 5 1 2 7. 7 4 2 1. 3 7 2 0. 2 5 2 0. 6 8 1 6. 7 9 2 1.

2 4. 7 3 2 9. 9 2 2 1. 3 4 2 1. 3 7 2 1. 7 5 1 6. 8 2 2 2.

24 .9 2

30 .3 6

21 .4 6

22 .4 8

21 .7 7

17 .2 5

23 .3

2 4

2 5 1 3. 3 9

1 4

2 7 1 8. 8 4

2 5 1 9. 7 8

3 6 2 0. 0 5

5 8 2 1. 1 9

4 5 2 2. 9 8

5 9 2 2. 7 6

6 2 2 4. 4 2

4 9 2 8. 8 6

7 8 1 5. 7 3

8 5 1 3. 7 6

2 7 1 5. 8 9

2 6 1 6. 4 2

3 9 1 7. 2 8

(S Air'a$s )roup

1 2. 2 8

1 3. 3 7

1 4. 5 3

1 4. 4 3

1 7. 7 5

19 .2 8

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.

.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

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

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.

.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 market valuation 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

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 share valuation of airlines can be increased through working capital management.

Reference
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