Alem Hagos (PhD)Yared Hussen2025-05-082025-05-082024-08-17https://etd.aau.edu.et/handle/123456789/5422The rapid creation and growth of small and medium-sized businesses has emerged as a crucial element of the development objectives of rising nations, Ethiopia included. Despite the increasing prevalence of these organizations, there is a scarcity of study on their working capital management. The objective of this research is to investigate the characteristics that influence the performance of small and medium-sized enterprises in Arada sub-city. It was conducted through a combination of qualitative and quantitative methods. The data collected from the various enterprises were then analyzed to come up with recommendations for improving the working capital management of these firms. Questionnaires were used to collect primary data, and the financial records of the businesses were used to obtain secondary data. 217 SMEs are the target population, and simple random sampling is the sample method used. 155 SMEs in Addis Ababa's Arada Sub Cites provided the data that was gathered. It was utilized to gather data for an experimental impact measurement after 149 valid surveys were returned. Descriptive statistics and quantitative techniques (regression and correlation) were used in the data analysis. The net operating profitability as an independent variable, along with the average collection time, average payment period, cash conversion period, current ratio, debt ratio, and company size as dependent factors, are used to illustrate the differences among working capital management and profitability. The study's conclusions imply that the length of time businesses need to receive their debts, settle their invoices, and gather cash has a detrimental impact on working capital. In addition, the likelihood of sufficient working capital requirements is influenced by the size, current ratio, and financial leverage of the SMEs that are the subject of the study. The study's findings suggest that businesses could need to give their clients longer credit periods, lengthen their cash conversion cycle, and need a longer repayment time. All extensions and cycles must be used to the fullest degree possible to achieve an ideal level of working capital and, if possible, to put into practice a cautious working capital management strategy. Therefore, it is wise to take this study's findings into consideration. When choosing how best to handle their time and cash in order to enhance their job performance. Key words: net operating profitability, small and medium enterprises, working capital managementenThesis