The Effect of Working Capital Management on the Profitability Textile Manufacturing Share Companies in Ethiopia
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Date
2023-06-02
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A.A.U
Abstract
The management of a company's current assets and liabilities is known as working capital
management. Having an adequate amount of working capital can assist firms in maximizing
their profits. The aim of this research was to examine how managing working capital affects the
profitability of textile manufacturing companies in Ethiopia. The study used a quantitative
research approach and analyzed secondary data collected from six manufacturing share
companies' financial statements. The data was collected from a population of 66 observations
covering an 11-year period (2011-2021) without applying any sampling technique. By
employing SPSS and STATA statistical software, the panel data was quantitatively examined
using fixed effect model estimation method. Major working capital management components,
that are identified throughout this empirical study, such as account receivable period, cash
conversion cycle and inventory conversion period shows, a statistically significant negative
relationship with profitability, according to the findings. It suggests that, in order to optimize
profit and raise the firm's worth, company management must keep the cash conversion cycle
and other components of working capital at their optimal levels. On the other hand, the study
has found that account payable period had shown statistically significant positive effect on the
profitability of textile manufacturing companies thru return on asset. Additionally, the study has
discovered that current ratio, has a considerable negative link with profitability, but sales
growth has a strong positive relationship with profitability. In contrast to the previous findings,
the researcher disclosed that a statistically insignificant positive association between the share
companies’ debt and profitability.
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Keywords
Working Capital Management, Return on Asset, Quantitative, Profitability, Textile Manufacturing, Share Companies.