The Impact of Working Capital Management on Profitability: Evidence from Tour Operators in Addis Ababa (2020–2023)
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Date
2025-09
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Addis Ababa University
Abstract
This study examines the Impact of Working Capital Management on Profitability: Evidence from Tour Operators in Addis Ababa (2020–2023). Using a balanced panel dataset of 608 firm-year observations, the research assesses key WCM components AAI, ACP, APP, and CCC in relation to profitability indicators, including ROA, ROE, and NOPM. Using panel regression analysis supported by correlation and diagnostic tests, the findings indicate that inefficient management of inventory and receivables, as evidenced by longer AAI and ACP, consistently weakens profitability. Furthermore, extended APP and CCC significantly weaken ROE and NOPM, reflecting liquidity constraints and operational inefficiencies. In contrast, the CR shows a positive and significant influence on profitability, underscoring the importance of liquidity in maintaining firm performance. Notably, firm size is negatively associated with profitability, suggesting diminishing returns as firm’s measure. The study highlights the need for strategic WCM practices that optimize cash flow and enhance operational quickness to improve financial outcomes in the tourism sector. These findings offer valuable insights for managers pursuing to strengthen financial sustainability in the tourism sector.
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Keywords
Working Capital Management, Profitability, Cash Conversion Cycle, Tour Operators, Liquidity, Panel Data Analysis