The Effect of Working Capital Management on Profitability of Grade One Construction Companies in Addis Ababa
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Date
2018-05
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Addis Ababa University
Abstract
An optimal working capital management is expected to contribute positively to the profitability of firms. The purpose of this study was to evaluate the Impact of working capital management and firm’s performance in the case of grade one construction companies in Ethiopia. The study used secondary data obtained from audited financial statements of forty five grade one construction companies registered and work in Ethiopia. The financial statements from the firms were analyzed to determine the effect of cash conversion cycle, inventory conversion period,average Collection and payables outstanding on the gross operating profit. The data was analyzed using Stata (Version 12.0) Software. Estimation equation by both correlation analysis
and cross sectional data regression was used for inferential analysis. The result revealed that company size in the study have positive coefficient and statistically significant effect on profitability , cash conversion cycle, and debit ratio in the research have negative sign of coefficient and significant effect. In contrast, the number of days inventory and the cash conversion cycle-CCC), on profitability measured are statistically insignificant. According to the
results of the study, it is suggested that grade one contractor’s can increase profitability by maintaining an optimal level of working capital. It is also recommended that level one construction company’s s should adopt efficient and effective working capital management policies to keeping working capital at optimal level.
Description
A Thesis is Submitted to the department of
Accounting and Finance of Addis Ababa
University in Partial Fulfillments of the
Requirements for the Degree of Master of Science
in Accounting and Finance
Keywords
Cross sectional data, Ethiopia, Grade one construction, Profitability