Impact of Working Capital Management on Firms’ Performance: Evidence from Large Taxpayer Printing Firm’s in Addis Ababa, Ethiopia
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Date
2018-02
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Addis Ababa University
Abstract
A well managed working capital promotes a firm’s profitability and it also acts in favor for
the growth of shareholders value. Many researchers have indicated that, firms cannot survive
and continue their daily operations without sufficient level of working capital. Moreover,
large numbers of business failures in the past have been blamed on the inability of the
financial manager in managing working capital of firms. Previous researches have examined
the relationship between working capital management and firm’s performance. The main
objective of this study was to investigate the impact of working capital management on
profitability of large tax payer printing firms. This study examined the impact of working
capital management on firm’s performance by using financial statements of large taxpayer
printing firms in Addis Ababa, Ethiopia from the period of 2011 to 2015. In this study, return
on asset (ROA) was used as a dependent variable while cash conversion period, Accounts
collection period, inventory conversion period, current ratio and firms size were used as an
independent variables. The data was analyzed using descriptive and regression analysis
method. Statistical analysis was computed by using Eviews version 9. In agreement with the
hypothesis of this research, the regression analysis has shown that working capital
management components have a significant impact on firm’s performance. The result of this
study has also indicated that inventory conversion period, account collection period and
current ratio have significant negative relation with profitability but positive significant
relationship between cash conversion cycle and profitability. However, the researcher found
insignificant negative relationship between the size of firm and profitability. Therefore,
managers of large taxpayer printing firms can maximize firm’s value and profitability by
improving management of working capital component at optimal level.
Key terms: Working capital management, Printing firms, profitability
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Keywords
Working capital management, Printing firms, profitability, profitability