The Effect of Working Capital Management Policies on Firms' Profitability

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The management of working capital is very important to businesses of all sizes (panache 2006) Thus this study examined the effect of working capital management policies (investment and Financing policies) on farms profitability to investigate this issue the researcher used undated Financial statements of a sample of 22 manufacturing private limited companies in Addis Ababa For the study period of 2006 to 2010 in this stud profitability measure (i.e. return on nasals return On equity and operating profit margin) where considered as dependent variables the study also Considers accounts receivable period inventory holding period and accounts payable period as Working capital investment policy (independent variables) cash conversion cycle and current assets Ratio are used as measures of working capital investment policy as measure of working capital Financing policy current liabilities to total nasals ratio is used in addition the two indicators Furthermore the study considers firm size firm growth rate financial leverage and annual CDP Growth rale of the country as control variables Views 6 was used to undertake both correlation And regression analysis of cross sectional and time series data the results from the study show That longer accounts receivable period and inventory holding periods are associated with lower Profitability a weak and negative relationship also exhibited between accounts payable period And profitability measures are not significantly related but findings slows a significant positive Relationship between current liabilities to total nesses ratio and profitability at last the negative Relationships of liquidity and profitability measures have been observed managers therefore can Increase firms profitability by improving the efficiency of management of working capital investment And financing policies while also keeping in view the trued off between liquidity and profitability.



Management Policies