Postgraduate Program in Accounting and Finance The Impact of Working Capital Management on Profitability of Selected Real Estate Companies in Addis Ababa.
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Date
2024-04-02
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A.A.U
Abstract
The objective of this study was to investigate the impact of working capital management on
profitability of selected real estate companies in Addis Ababa. In light of the above objective the
study employed quantitative research approach to test research hypothesis. Sample of six (6)
companies were purposively selected through purposive sampling and the sample firms’
financial statement was collected for the period of five years from 2014 to 2023. In this study
the firm’s profitability was measured by return on asset and working capital measures of cash
conversion cycle, average collection period, inventory conversion period and account payable
payment period were used as independent variables to measure working capital management
efficiency additionally some control variables such as current ratio, debt ratio, firm size, current
asset to total asset ratio and current liabilities to total asset ratio used in this study. The values
of those variables were calculated from the combination of different balance sheet and income
statement items and data was analyzed on quantitative basis using descriptive correlation and
regression analysis (pooled ordinary least square) method. Results found shows that working
capital management has statistically significant negative impact on the firms’ profitability. It
means managers can enhance their profitability by handling correctly the cash conversion cycle
and keeping average collection period, inventory conversion period and accounts payable
payment period to a possible optimum level. Therefore, managers of those companies could
increase their profitability by effectively managing their working capital.