The Impacts of Working Capital Management of Firms Profitability
No Thumbnail Available
Date
2011-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
The purpose of this study is to investigate the impact of working capital management on
firms’ profitability. The study aims to examine the statistical significance between firms’
working capital management and profitability.
In light of this objective the study adopted quantitative method of research approaches to test
a series research hypothesis. Specifically, the study used survey of documentary analysis of
companies’ audited financial statements. Stratified sampling design was employed based on
nature and turnover of companies. Then companies were selected based on simple random
sampling method from each stratum’s to avoid biases and represent firms from each sub-
classification (stratum’s) within manufacturing companies. Consequently, the study selected
a sample of thirteen (13) companies for the period of five years (2005-2009) with the total of
65 observations. Data was then analyzed on quantitative basis using Pearson’s correlation
and OLS regression analysis.
The results showed that there is statistical significance negative relationship between
profitability and working capital management. It means that, companies managers can
create profits or value for their companies and share holders by handling correctly the cash
conversion cycle and keeping each different component of working capital to a possible
optimum level. The researcher found that there is a significant negative relationship between
liquidity and profitability. Moreover the study finds that there is strongly significance
positive relationship between size and firm profitability. Unlike, the study found that there is
no statistically significance negative relationship between debt used and firms profitability.
Keywords: working capital, working capital management, firm size, cash conversion cycle
and profitability
Description
Keywords
Working capital, Working capital management, Firm size, Cash conversion cycle and profitability