Chapter 1

Introduction
This chapter presents the rationale of the study, problem and its significance
and the definition of terms of the study.

Rationale of the Study

The success of the business would depend to a large extent on how the people
efficiently manage and administer resources toward the achievement of its goals and
objectives. Firms financial management policies compose of very important
decisions including working capital management (Asghar& Syed Atif Ali, 2012)
Working capital management has become very essential in financial management
since it gives great effect on the firms profitability, risk and accordingly, its worth
(Ebenezer & Asiedu, 2013). The notion of working capital management concentrates
on companies short term capital management and its aim is to stimulate liquidity,
profitability and shareholders value (JengRen, Wu& HanWen, 2006).
A great increase in the number of industries and firms engaged in different
businesses around the world has been immense and working capital managements
importance is the same in both small and large businesses (Abor, 2005). In view of
the importance of working capital management the researchers focused on analyzing
relationship between working capital management and profitability like Gul, Khan,
Rehman, et al (2013) on SMEs Sector; Almazari, (2013) on Saudi on cement
companies; and Makori & Jagongo (2013) on manufacturing and construction firms.
Often, Philippine firms neglect their working capital management when it come the
consideration regarding profitability (Magpayo, 2011).

Philippine agriculture plays a vital role in the economy and is characterized

by a mixture of small, medium and large farms. Agriculture including forestry and
fishery, plays a dominant role in the Philippine economy.
Primarily, Philippine agriculture consisted of rice, corn, coconut, sugar,
banana, livestock, poultry, other crops and fishery production activities. The sector's
contribution to the economy has been substantial. It registered a growth rate of 3.2%.
The growth was mainly due to the expansion of the poultry, livestock, and palay sub
sectors.
Cooperatives play a vital role in the Philippine economy as well. According to
statistics, the cooperative sector made significant contribution amounting to P 517
billion pesos which is about 12.5% of the Gross Domestic Product for the year 2003
and provided direct and indirect employment for more than 1.5 million Filipinos. It
could be said that the cooperative movement is a dynamically alive.
There are a lot of researches conducted which indicate conflicting results
concerning the relationship between working capital management techniques and
financial performance of credit and savings cooperatives like Padachi (2006) who
found out that working capital management has a significant relationship with
profitability while Ongore and Kusas (2013) study revealed a conflicting result in
which liquidity does not influence financial performance. But as to the researchers
knowledge so far there is no any study conducted on agricultural cooperatives in the
Philippines. The foregoing reasons call for the current study to investigate the
influence of working capital management to profitability of agricultural cooperatives.
Statement of the Problem

This study assessed the relationship between working capital management

and profitability of agricultural cooperatives in Davao City.
Specifically, this study aimed to answer the following objectives:
1. To determine the working capital management among agricultural
cooperatives in Davao City in terms of:
1.1 Average Age of Inventory (AAI);
1.2 Average Age of Receivables (AAR);
1.3 Current Ratio; and
1.4 Quick Ratio.
2. To determine the profitability of agricultural cooperatives in Davao City in
terms of Return on Assets.
3. To establish the significant relationship between working capital management
and profitability among agricultural cooperatives in Davao City.

Statement of Hypothesis
There was no significant relationship between working capital management
and profitability among agricultural cooperatives in Davao City.
Significance of the Study
This part of the study discusses the importance of having research on the
relationship between working capital management and profitability of agricultural
cooperatives in Davao City. The following will be benefited on account of this study:
Colleges and Universities. This study will give an opportunity to enrich their
level of instruction to their students particularly to the concept related to this study,
and as research reference as well as in the future.

Accountancy students. This study will contribute to their stock of knowledge

and enhance their learning in accounting especially in the field of Management
Advisory Services.
Agricultural Cooperatives. The result of this study will help them do
necessary changes in practices of working capital management to enhance
profitability.

Definition of terms
The following operational definition of terms were used in the study:
Working Capital Management refers to a managerial accounting strategy focusing
on average receivables, average inventory, quick ratio, and current ratio.
Profitability is used to measure return on assets.
Agricultural Cooperatives refers to the respondents used in the study.