Theoretical Framework

Theoretical Framework The circular cash flow concept theory of working capital by San Gabriel (2011) is based upon the operating capital cycle of a firm and the cash conversion cycle by Gentry James and Hei wai Lee. The operating cycle emphasizes cash conversion which then represents how quickly a firm turns its products from paying for paying for inventory (payable) to collecting cash from customers in payment for finished goods or services rendered. Furthermore, cash conversion is considered as the length of time between payment of cash for inventory, payment of debt obligation and receipt of cash from collections. This conversion is also equal to inventory conversion period, plus the collection period, minus the payable deferral period. The concept is significant to this study entitled “Effects of working capital management on the profitability of small and medium enterprises in the First District of Rizal”, since it has been emphasized that working capital management can be measured in terms of cycle including cash, accounts payable and inventor. Thus, working capital management practices are greatly needed by Small and Medium enterprise industries to run the operation accordingly and profitably. Hypotheses The researchers tested the following null hypotheses: 1. There is no significant difference on the perception of the respondents in the Effects of Working Capital Management on the profitability of Small and

Medium enterprises in the First District of Rizal, based on their personal profile. 2. There is no significant difference on the perception of the respondents in the Effects of Working Capital Management on the profitability of Small and Medium enterprises in the First District of Rizal, based on their business profile.