The effects of liquidity on inventory: Evidence form forestry subsector in Turkey

Year 2018, , 98 - 110, 26.10.2018

Ali Faruk Açıkgöz , Celal Demirkol Sudi Apak

https://doi.org/10.31195/ejejfs.458934

Cited By: 1

Abstract

As a part of
Agriculture sector, forestry subsector is the main provider for the forestry
products industry which has been neglected in terms of short-term liabilities
and liquidity analysis. Liquidity is a function of the liabilities of the
businesses in the short-run and it is expected to consist much of trade credit
rather than bank credit. This study tries to reveal the long-term dependence of
the short-term inventories on cash and cash equivalents, short-term bank credit
used, and short-term accounts receivable as a percentage of short-term
liabilities in the forestry products subsector in Turkey. We analyze the sectoral three years averages of aggregate
balance sheet data in the long-term (1998 - 2016) and we depict that
inventories have correlations with cash and cash equivalents, short-term bank
credit and short-term accounts receivable and we also reveal that the sector’s
short-term liabilities have had a diminishing trend in the very long-run. After
introducing the model, we have run the linear regression of the model and we share
the robust results of the tests. The findings give evidence that inventories, which
are in fact the most illiquid part of the current assets, have bank credit
dependency as much as accounts receivable though decreasing liabilities in the
short-term. We therefore offer suggestions on the results for the forestry products
subsector so as to hedge against the potentially adverse liquidity conditions
in the near future. Each precaution held for a subsector will therefore help
the sustainability of the forestry and the agriculture sector as a whole and it
will also contribute as an example therein integrated especially with the
marketing strategies.

Keywords

financial analysis, liquidity, inventory, bank credit, Forestry products subsector

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