The Impacts of Working Capital Management on firms Profitability. Evidence from Selected Manufacturing Companies in Somali Regional State, Ethiopian.
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Date
2015-06
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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
component of working capital management and firm’s 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 purposively of companies. Then companies were selected based on
purposively from each stratum’s to avoid biases. Consequently, the study selected a
sample of twenty five (25) companies for the period of six years (2009-2014) with the
total of 150 observations. Data was analyzed on quantitative basis using Pearson’s
correlation and pooled panel data regression models of cross-sectional and time series
data were used for analysis. More over the study used gross operating profit as
dependent profitability variable. Accounts receivable Days, inventory holding Days,
and accounts payable Days and cash conversion cycle are used as independent
variables. Also current ratio, debt ratio, firm size and sale growth as control variable
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 shareholders 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
a significance negative relationship between size and firm profitability. Unlike, the
study found that there is negative relationship between debt used and firms
profitability. Meanwhile the study found that there is positive relationship between
firm’s growths and firm’s profitability
Keywords: working capital, working capital management, firm size, cash conversion
cycle and profitability
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Keywords
Working capital, Working capital managemen, Firm siz, cash conversion cycle and profitability