Working capital management vs profitability in agricultural holdings (in the context of integration for “old” and “new” EU members)

Abstract

Purpose: The aim of this article is the analysis of the relation among the net working capital and the profitability (ROA, ROS) of agricultural holdings in the European Union (EU) taking into consideration the difference between “old” and “new” EU members. Approach/Methodology: The source of data on the production and economic situation of approximately 8400 agricultural holdings is Farm Accountancy Data Network (FADN). Analysed objects are divided into four classes considering the length of the net working capital (NWC) cycle (less than a year, more than a year) and of the date of accession to the European Union. The centres of gravity in each class are estimated with the use of the Gretl program. The relationship between the NWC to assets and profitability is also estimated. Findings: A statistically significant and positive relationship between these categories is revealed in all four analysed classes. Therefore, the relation of the NWC to assets affects the profitability of agricultural holding. The factor differentiating the strength of this impact is the length of the NWC cycle. It allows formulating concluding remark that most holdings maintain it up to 1 year, therefore the situation of agricultural holdings in this respect is safe. Practical Implications: The study examines the current situation of agricultural holdings in the EU. The research may serve as a unique source of information on the financial situation of European agricultural holdings. Achieved results may be useful to agriculture managers, politicians and managers of companies cooperating with agricultural holdings. Originality/Value: The capital management framework is similar in both groups of countries – “old” 15 EU countries and “new” 13 EU countries. It appears that agricultural holdings of working capital period up to achieve more favourable results concerning the NWC 1 year, production factors and profitability. The longer the cycle, the less favourable the conditions. However, the working capital practices appear to be relatively stable over the analysed period.