Working Capital Management and Its Impact on Profitability Evidence from Food Complex Manufacturing Firms in Addis Ababa (original) (raw)
Related papers
The Impact of Working Capital Management on Profitability
Interdisciplinary Journal of Innovation in Nepalese Academia, 2023
Efficient working capital management (WCM) is expected to contribute positively to the firm's profitability. With the aim of analyzing the impact of WCM on the profitability of non-financial firms listed in NEPSE, this paper has used current ratio (CR), debt ratio (TDTA), current assets to total assets (CATA), current liabilities to total assets ratio (CLCA) and inventory conversion period (ICP), receivable conversion period (RCP), payable deferral period (PDP), and cash conversion cycle (CCC) as the measures of WCM. This paper has used annual panel data of 12 non-financial NEPSE-listed firms from 2005/06 to 2019/20. Based on the result of the Breusch and Pagan Lagrangian multiplier and Hausman tests, the study found the Random Effect model as the appropriate regression model. Using the Random Effect regression model, this paper has found the significant impact of WCM on profitability. Likewise, this paper found a significant negative impact of the current ratio (CR) and debt ratio (TDTA) and a significant positive impact of the ratio of current assets to total assets (CATA) on profitability. Further, the finding also reveals that there is an insignificant negative impact of the inventory conversion period (ICP) and receivable conversion period (RCP) and an insignificant positive impact of the payables deferral period (PDP). Thus, this paper concludes that Nepalese non-financial firm can increase their profitability by decreasing the current ratio (CR) and debt ratio (TDTA) and increasing the ratio of current assets to total assets (CATA).
This study examined the impact of working capital management on the profitability of selected quoted agricultural and agro-allied companies (from 2012 to 2016) in Nigeria. Secondary data were extracted from eighteen quoted agricultural and agro-allied companies in Nigeria, four of which are agricultural companies out of the twenty-three in Nigeria. Descriptive research design and regression analysis were used. Working capital management was measured using the trade receivables collection period, trade payables, payment period, inventory turnover period, and cash conversion cycle, while profit before interest and tax measured profitability. This study found that working capital management and profitability are related to the agriculture and agro-allied sector in Nigeria. The result shows the trade receivables collection period and profitability are negatively related. The result also shows the trade payables payment period and profitability are positively related. The result shows that the inventory turnover period and profitability are related, the cash conversion cycle and profitability are positively related. The conclusion is that working capital management and profitability are related. If the management of firms takes efficient and effective decisions in managing the company's working capital, all things being equal, the maximization of the firm's profitability, value, and shareholders' wealth can be guaranteed. Consequently, agency costs asserted by agency theory would be eliminated automatically.
Science Journal of Business and Management, 2019
In every organization, corporate finance deals with three decisions: capital structure decisions, capital budgeting decision, and working capital management decisions. Among these three decisions, working capital management is recognized as an important concern of the financial manager. The study examines the effects of working capital management on profitability of manufacturing companies in Dire Dawa city and have the following research objectives: Examine the effect of number of days account receivable (NDAR) on profitability of manufacturing companies, Examine the effect of number of days inventories (NDI) on profitability of manufacturing firms, To investigate the effect of no of days account payable (NDAP) on profitability of manufacturing firms and Examine the effect of cash conversion cycle (CCC) on profitability of manufacturing firms. The research was quantitative that utilizes secondary data of companies from 2011-2015 for sample of 14 companies to address the objectives. The study purposively selected Dire Dawa city this is because of the majority of the Eastern region industries found in this city. The secondary data was collected from different company's records about from audited balance sheet and income statement that was submitted to Ethiopian revenue and custom authority Dire Dawa branch and Dire Dawa Administration Revenue Authority for tax purpose. The result of the study shows that there is significantly negative relationship between number of date account receivable, number of day's inventory holding and company's profitability. The study reveals that there is no significant relationship between number of days account receivable and profitability. But cash conversion cycle has significant negative relationship with profitability. Moreover debt ratio has statistically negative relationship with company's profitability.
ARTICLE, 2019
The main purpose of this study is to examine the effect of working capital management on profitability. To investigate this relationship the author collected secondary data from 8 flour factories in Gedeo zone for the period of 2012 to 2016. Accounts receivable days, inventory days and accounts payable days are used as independent working capital investment policy variables. Moreover, cash conversion cycle is used as measures of working capital investment policy. On the other hand, current ratio is used as measure of working capital financing policy. The regression results show inverse relationship between accounts receivable and inventory holding periods with profitability. However there is statistically insignificant relationship between accounts payable period and logarithm of total asset with profitability. The results also show that there exists significant negative relationship between cash Conversion cycle and profitability of the firms. On the other hand, results reveal that a significant positive relationship between current asset to current liability ratio and profitability. To be profitable, firms must reduce numbers of days account receivable and inventory turnover days to minimum level. The financial managers of flour factories should follow conservative investment policy and aggressive financing policy in their working capital management.
2018
Working Capital Management involves management of current assets and liabilities of the organization. It is also recommended that manufacturing companies like Roha Pack Plc should adopt efficient and effective working capital management policies to keeping working capital at optimal level. Because mishandling working capital can lead to the collapse of such organization. The purpose of this study is to evaluate the impact of working capital management and firm profitability in the case of Roha Pack Plc, Hana Mariam Industry Zone, Addis Ababa. This study used a mixed research approach and the research design of the study were longitudinal research design. Data collected through interview and document review. The data was analyzed using SPSS (version 20.0), estimation equation by both correlation analysis and pooled panel data regression models of cross-sectional and time series data were used for analysis. Results indicate that longer accounts receivable period and cash collection cy...
Applied Finance and Accounting, 2015
The paper examines the impact of working capital management on corporate profitability through the periods of 2008 to 2012. The total of seven firms listed on the floor of the Nigerian Stock Exchange was studied, using secondary data generated from annual reports and accounts of the sampled companies and the Nigerian Stock Exchange Fact book. The data were analyzed by means of descriptive statistics and GLS regression analysis using STATA 11. The study finds a positive relationship among Average Collection Period (ACP), Current Ratio (CR) and the size of the firm (LOGSIZE) with Profitability and a negative relationship with Inventory Turnover Period (ITP), Average Payment Period (APP). The paper therefore recommends that cash collected should be reinvested into short-term investment to generate profits and fund left idle in the cash or excessive liquidity is costly and do not lead to profitability.
Working Capital Management and Firm Profitability: An Empirical Review
Management Journal for Advanced Research
Working capital management is very important for the survival of a company no matter the size of that company. Inadequate working capital or illiquidity is a major issue confronting Many Nigerian companies. The main objectives of this study is to review the impact of working capital management on the profitability. The variables used in the study were cash conversion cycle, accounts receivable, inventory and accounts payable proxies to working capital management while, return on equity and return on assets as proxies to profitability. The study adopted conceptual approach where data collected from already existing data on the impact of working capital management on profitability. it is quite clear that a positive correlation exists between working capital management and firms’ profitability. Finally, a company which maintain sufficiently low inventory levels will reduce the holding cost of the inventory which results to higher profitability. The managements of companies should impro...
2015
The main purpose of this study is to test empirically the impact of working capital management on profitability .To investigate this relationship between these two, the author collected secondary data from 19 manufacturing share companies in Addis Ababa, Ethiopia for the period of 2010 to 2014. Accounts receivable period, inventory holding period and accounts payable period are used as independent working capital investment policy variables. Moreover, cash conversion cycle and current assets to total assets ratio are used as comprehensive measures of working capital investment policy. On the other hand, current liabilities to total assets ratio is used as measure of working capital financing policy. The regression results show inverse relationship between accounts receivable and inventory holding periods with profitability. However there is statistically insignificant relationship between accounts payable period and profitability. The results also show that there exists significant ...
Working Capital Management as a Financial Performance Indicator of Profitability and Liquidity
The study examined the influence of the working capital of Ayrton Drugs Ltd and Starwins Product Ltd on its profitability. The study further assessed the influence of collection period, inventory period, payable period and the cash conversion cycle on ROA (Return on Assets). The study used financial information obtained from Annual Report Ghana. The financial data was used to construct a balanced panel of two pharmaceutical companies from 2004 to 2013. A multiple linear regression model was estimated with Prais-Winsten AR regression model to provide robust estimates and control for the presence of heteroskedascity and auto correlation in the residual term. Findings for the multiple linear regression model indicate that working capital variables were insignificant in influencing profitability; showing that a unit change in cash conversion cycle of the pharmaceutical companies had no influential change in magnitude, on profitability. Similar results in terms of direction and magnitude were found for average collection period, inventory days and payable period (APD). Average collection period was insignificantly positive with profitability implying longer payment or possible defaults. Payable period suggest liquidity challenges affects ability to meet payable obligations. Lack of influence between the cash conversion cycle and the profitability was due to limited sales or revenue generating activities relative to cost associated with production, receivable and inventory management. Conversely, findings for inventory period show a positive relationship suggesting, very limited or few inventory are kept.
How does profitability get affected by working capital management in food and beverages industry?
2013
This study examines the working capital management of the Food and Beverage Corporations from the U.S.A. and Canada during the 10 years study period from year 2000 to 2009. Firstly, unlike previous studies which advocate a linear relationship between the working capital management and profitability, it investigates the existence of a possible nonlinear relationship. Secondly, the efficiency of working capital management was checked using performance index, utilization index and efficiency index rather than using the conventional turnover ratios. Thirdly, the distribution of working capital measure i.e. cash conversion cycle and factors affecting viz. leverage, growth, size, age, cash flow and fixed assets to total assets ratio has been studied. The results suggest the existence of concave relationship between the working capital management and profitability. The findings also revealed that the corporations were efficient during the study period.