**3. Literature review**

In finance literature, importance of working capital management has been a common thought among researchers. There have been various studies to analyze the relationship of working capital components and the profitability of firms. A lot of different indicators are used to represent working capital components like cash conversion cycle, inventory period, payment period, leverage, growth, etc. For the profitability of a firm, in different kinds of studies, we can see these indicators as return on asset ratio, return on equity and gross operating profit, net profit margin, etc. Some of them reveal that there is a positive relationship between working capital components and profitability, while others suggest that there is a negative relationship or no statistically significant relationship.

Some researchers are seen to use just return on asset indicator as a profitability measurement, as we have done in our study. For Turkey, Şamiloğlu and Demirgüneş [10] analyzed the effect of working capital management on firm profitability for the period of 1998–2007 manufacturing firms listed in Istanbul Stock Exchange (ISE). They have chosen return on assets as the measure of profitability. Empirical findings of the study showed that accounts receivables period, inventory period, and leverage affect firm profitability negatively, while growth (in sales) has a positive effect [10]. For Cyprus, Charitou et al. [11] investigated the effects of working capital management on firm's financial performance in an emerging market. Their data set consisted of 43 firms listed in the Cyprus Stock Exchange for the period of 1998–2007. Empirical results indicated that the cash conversion cycle and all its major components, namely, days in inventory, days in sales outstanding, and creditors payment period, were associated with firms' profitability. Days in inventory is inversely related to profitability. The sales growth has a positive coefficient with return on assets, meaning that growth leads to increase profitability [11]. In both studies, while inventory period has a negative effect, growth in sales has a positive effect on return on assets as a profitability measurement.

Effective management of working capital, which directly affects the company's liquidity and profitability, is important in terms of business finance. The management of working capital components also contributes business goal. This contribution is intended to maximize the net present value of the companies. Financial manager needs to consider and evaluate the cashgenerating power of the company in the crisis period as well as interest in maximizing the net

The main components of working capital, as previously mentioned, comprise current assets and short-term liabilities. The main objective of working capital management is to keep an optimal balance among each of the working capital components [7]. Working capital, which represents the current assets of companies, is one of the main factors affecting the profitability and liquidity of the company. The type of working capital management has an important effect on profitability and liquidity of the companies [8]. There needs to be a significant balance that working capital has to establish between these two factors. In other words, focusing on only optimal liquidity or profitability can have a negative effect on financial performance [9]. The optimal level of working capital for the companies can be achieved by balancing profitability and liquidity. The idle part of the working capital leads to decline in profitability,

The fact that working capital components are influenced by many factors necessitates financial managers to be careful in their decisions and financial analysis. Companies try to keep an optimal level of working capital that maximizes their value. Accomplishment of this aim

In finance literature, importance of working capital management has been a common thought among researchers. There have been various studies to analyze the relationship of working capital components and the profitability of firms. A lot of different indicators are used to represent working capital components like cash conversion cycle, inventory period, payment period, leverage, growth, etc. For the profitability of a firm, in different kinds of studies, we can see these indicators as return on asset ratio, return on equity and gross operating profit, net profit margin, etc. Some of them reveal that there is a positive relationship between working capital components and profitability, while others suggest that there is a negative relation-

Some researchers are seen to use just return on asset indicator as a profitability measurement, as we have done in our study. For Turkey, Şamiloğlu and Demirgüneş [10] analyzed the effect of working capital management on firm profitability for the period of 1998–2007 manufacturing firms listed in Istanbul Stock Exchange (ISE). They have chosen return on assets as the measure of profitability. Empirical findings of the study showed that accounts receivables period, inventory period, and leverage affect firm profitability negatively, while growth (in sales) has a positive effect [10]. For Cyprus, Charitou et al. [11] investigated the effects of working capital management on firm's financial performance in an emerging market. Their data set consisted of 43 firms listed in the Cyprus Stock Exchange for the period of

present value of the company during normal [6].

192 Financial Management from an Emerging Market Perspective

while the deficit in working capital causes the default risk.

depends on efficient working capital management.

ship or no statistically significant relationship.

**3. Literature review**

Making use of return on equity as a measure of profitability, Sharaf and Haddad [12] examined the relationship between working capital management and profitability using panel data analysis for a sample that consists of 43 industrial companies listed in the Amman Stock Exchange in Jordan, during the period of 2000–2012. The results show a significant negative relationship between cash conversion cycle and profitability, whereas a positive relationship between payables deferral period and return on equity as a measurement of profitability [12].

For Kenya, Mathuva [13] looked at the influence of working capital management components on corporate profitability for companies listed on the Nairobi Stock Exchange (NSE) for the period of 1993–2008. Net operating profit was chosen as the dependent variable. The key findings from the study were, firstly, a highly significant negative relationship was found between the time it takes for firms to collect cash from their customers (accounts collection period) and profitability. This means that the more profitable a firm is the shorter the cash collection time will be from their customers. Secondly, a highly significant positive relationship was found between the period taken to convert inventories into sales (the inventory conversion period) and profitability. In our study also, we obtained the same result that the inventory period positively affects firm profitability. This means that firms which maintain sufficiently high inventory levels reduce costs of possible interruptions in the production process and loss of business due to scarcity of products. This reduces the firm supply costs and protects them against price fluctuations. Thirdly, a highly significant positive relationship was found between the time it takes the firm to pay creditors (average payment period) and profitability. This implies that the longer a firm takes to pay its creditors, the more profitable it is [13].

Some of the researchers used gross operating profit as a profitability indicator in their studies. Rahman et al. [14] examined the relationship between working capital management and profitability of 10 sample companies listed in Chittagong Stock Exchange (CSE) of Bangladesh with primary and secondary data. The study clearly asserts that sample companies listed in CSE have enough scope to enhance their profitability by the use of working capital in more efficient ways [14]. On the other hand, Husain and Alnefaee [15] selected to analyze the impact of working capital management and the profitability of 18 listed agriculture and food companies of Saudi Arabia for the period of 2009–2014. Gross operating profit as dependent variable and average collection period, average payment period, inventory turnover in days, and cash conversion cycle as independent variables were used. The regression analysis revealed that there is no significant impact of working capital management on profitability for this sample [15].

Many researchers have focused on the relationship between different types of profitability measures and working capital management. Most of these studies support the conclusion that there is a negative relation between profitability and working capital management measures, like the average collection period, inventory turnover in days, and cash conversion cycle. Ahmadi et al. (2012) investigated the relationship between working capital and profitability at companies of food industry group member Tehran Stock Exchange. They used operational profit as profitability. The results showed that average accounts collection period, average inventory turnover period in days, average payment period, and cash conversion cycle have a negative relation with profitability [16]. On the other hand, Arbidane and Ignatjeva (2013) examined the effect of working capital on profitability of Latvian manufacturing firms on the sample of 182 firms for the period of 2004 to 2010. For profitability, return on assets and gross operating profitability indicators were determined. The results of the research that has been performed in relation to Latvian manufacturing enterprises confirm the existence of a correlation between components of working capital and profitability [17]. Aregbeyen (2013) analyzed the effect of working capital management on the profitability of a sample of 48 large manufacturing firms quoted on the Nigerian Stock Exchange (NSE) for the period of 1993–2005. Profitability was alternatively measured by gross operating profit, net operating income, and return on assets. The results indicated that the firms have been inefficient in their working capital management, and this caused significant reductions in profitability. Manufacturing firm in Nigeria should shorten average collection period, average pay period, inventory turnover days, and reduce their cash conversion cycle to be successful [18]. Moreover, Alavinasab and Davoudi [19] who focused on return on assets and return on equity ratios for profitability measurement selected 147 listed companies on Tehran Stock Exchange for the period of 2005–2009. The results show a negative significant relationship between cash conversion cycle and both return on assets and return on equity [19]. Singhania et al. [20] used cash conversion cycle as a measure of working capital management, whereas gross operating profit was a proxy for the firms' profitability. The sample consisted of Indian manufacturing companies of BSE-500 index of the Bombay Stock Exchange for the period from 2005 until 2012. The results revealed that cash conversion cycle of a company has a negative correlation with its profitability [20]. Furthermore, Şamiloğlu and Akgün [21] examined the relationship between working capital management and performance, using variables such as profitability between accounts receivables period, account payable period, and cash conversion cycle on Istanbul Stock Exchange (ISE). One hundred and twenty manufacturing firms were selected for a period of 10 years from 2003 to 2012. The results showed that a significant and negative relationship exists between accounts receivables period and return on asset, return on equity, operating profit margin, and net margin in manufacturing industry [21].

All the researchers above have investigated the effects of working capital components on the profitability of firms. To carry out a somewhat similar research but in a different country and sector, namely, the Turkish mining sector, research data and method section describes the variables that will be used for the investigation and also the data sample.

### **4. General properties of mining firms**

Mining is one of the most important sources of income and foreign exchange for countries. For this reason, the mining sector has become a strategic sector among countries. About 30 million people work in mines around the world. Considering the amount of employment each miner has created employment for other workers in different sectors and also the family members they are obliged to look at, mining is a giant sector closely related to 300 million people in the world [22].

There are some differences that distinguish the mining industry from other sectors. These features are:


at companies of food industry group member Tehran Stock Exchange. They used operational profit as profitability. The results showed that average accounts collection period, average inventory turnover period in days, average payment period, and cash conversion cycle have a negative relation with profitability [16]. On the other hand, Arbidane and Ignatjeva (2013) examined the effect of working capital on profitability of Latvian manufacturing firms on the sample of 182 firms for the period of 2004 to 2010. For profitability, return on assets and gross operating profitability indicators were determined. The results of the research that has been performed in relation to Latvian manufacturing enterprises confirm the existence of a correlation between components of working capital and profitability [17]. Aregbeyen (2013) analyzed the effect of working capital management on the profitability of a sample of 48 large manufacturing firms quoted on the Nigerian Stock Exchange (NSE) for the period of 1993–2005. Profitability was alternatively measured by gross operating profit, net operating income, and return on assets. The results indicated that the firms have been inefficient in their working capital management, and this caused significant reductions in profitability. Manufacturing firm in Nigeria should shorten average collection period, average pay period, inventory turnover days, and reduce their cash conversion cycle to be successful [18]. Moreover, Alavinasab and Davoudi [19] who focused on return on assets and return on equity ratios for profitability measurement selected 147 listed companies on Tehran Stock Exchange for the period of 2005–2009. The results show a negative significant relationship between cash conversion cycle and both return on assets and return on equity [19]. Singhania et al. [20] used cash conversion cycle as a measure of working capital management, whereas gross operating profit was a proxy for the firms' profitability. The sample consisted of Indian manufacturing companies of BSE-500 index of the Bombay Stock Exchange for the period from 2005 until 2012. The results revealed that cash conversion cycle of a company has a negative correlation with its profitability [20]. Furthermore, Şamiloğlu and Akgün [21] examined the relationship between working capital management and performance, using variables such as profitability between accounts receivables period, account payable period, and cash conversion cycle on Istanbul Stock Exchange (ISE). One hundred and twenty manufacturing firms were selected for a period of 10 years from 2003 to 2012. The results showed that a significant and negative relationship exists between accounts receivables period and return on asset, return on equity,

194 Financial Management from an Emerging Market Perspective

operating profit margin, and net margin in manufacturing industry [21].

variables that will be used for the investigation and also the data sample.

**4. General properties of mining firms**

All the researchers above have investigated the effects of working capital components on the profitability of firms. To carry out a somewhat similar research but in a different country and sector, namely, the Turkish mining sector, research data and method section describes the

Mining is one of the most important sources of income and foreign exchange for countries. For this reason, the mining sector has become a strategic sector among countries. About 30 million people work in mines around the world. Considering the amount of employment each miner has created employment for other workers in different sectors and also the family


The mining sector, which has great importance in development and economic progress of countries, creates significant added value. Share of mining in GNP is 5% in the USA, 4% in Germany, 3.7% in Canada, 6.5% in Australia, 22% in Russia Federation, 8.5% in Chile, 6.5% in South Africa, 3% in Brazil, and 1.2% in Turkey. While the share of mining in GNP was 44% in the 1940s in Turkey, it started to decrease gradually in the 1950s. After the transition to the planned economy period, this deceleration accelerated to 1% in the 2000s [23].

Turkey's mineral resources are almost as diverse as mineral sources of a continent. There are more than 40 different minerals in Turkey. Despite of all inadequacies related to searching for boron, marble, thorium, trona, zeolite, pumice, and celestite mines, Turkey has the largest reserves for these elements. However, the mining sector in Turkey plays a very small role in the Turkish economy. While Turkey ranks 29th among the 152 countries in terms of the variety of mineral resources produced, Turkey is in the tenth place when it is based on production made in the form of mining. According to producer countries, Turkey is ranked 52nd with the share of 0.16%. The amount of value added created by this production reaches 2–2.5 billion dollars, and its share in GNP is around 1–1.5%, depending on the years. When the mining sector and other sectors based on mining sector are considered together, the share of added value in GNP is around 12%, which means that 22 billion dollars has been created [24].
