Managing Working Capital in Retail - Evidence from private and publicly listed Swedish retail firms

Sammanfattning

Working capital management (WCM) sits at the intersection of operations and financing, determining the extent to which a firm can fund its operations internally or must resort to costly external financing. This study investigates the relationship between WCM and financial performance among Swedish retail firms, utilizing the cash conversion cycle (CCC) and its sub-components as WCM proxies. Return on assets (ROA) and gross margin return on inventory investment (GMROI) are deployed as financial performance measures, with the latter serving as a retail-specific measure of inventory productivity. We further examine whether this relationship is shaped by firm listing status. Using an unbalanced panel of private and publicly listed Swedish retail firms over 2014-2023, we conduct a quantitative study employing OLS regression. Our results reveal significant negative relationships between WCM and GMROI, but not for ROA, establishing gross margin performance and inventory management as key determinants for working capital management efficiency. Ultimately, these findings contribute to prior WCM literature by demonstrating that the WCM-performance relationship in Swedish retail is not universal, but highly contingent upon how financial performance is measured.