Articlegold2020

The effect of working capital management on profitability

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14 citations0/0 files storedInternational Journal of Research in Business and Social Science (2147-4478)

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Working Capital and Financial Performance Financial Analysis and Corporate Governance Supply Chain and Inventory Management

Abstract

This research aims to analyze the impact of efficient working capital management on the profitability of the manufacturing firm in Bangladesh. Fifty-two manufacturing companies listed with Dhaka Stock Exchange (DSE) have been selected randomly from 2012 to 2017. Return on Assets (ROA) and Return on Equity (ROE) are used as indicators of profitability, while the inventory conversion period (ICP), the average collection period (ACP), the average payment period (APP), and the Cash Conversion Cycle (CCC) are used as the independent variables which are used as a measurement of working capital management of the firm. Ordinary Least Squares regression models and Pearson's Correlation are used to establish the relationship between working capital management and profitability. The results revealed a significant negative relation between ROA and CCC, ACP; a significant negative relationship exists between ROE and CCC, APP. Manufacturing companies can increase profitability by decreasing the cash conversion cycle, average payment period, and average collection period. It also revealed that ICP is also positively related to ROA and ROE. Therefore, this research concludes that efficiently and effectively managing working capital is very important for increasing manufacturing companies' profitability.

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References

2007WORKING CAPITAL MANAGEMENT AND PROFITABILITY-CASE OF PAKISTANI FIRMS 2006TRENDS IN WORKING CAPITAL MANAGEMENT AND ITS IMPACT ON FIRMS, PERFORMANCE: AN ANALYSIS OF MAURITIAN SMALL MANUFACTURING FIRMS 2010The Relationship Between Working Capital Management And Profitability: Evidence From The United States 2010Effect of Working Capital Management on Firm Profitability 2010Working Capital Management: The Effect of Market Valuation and Profitability in Malaysia 2010WORKING CAPITAL MANAGEMENT AND CORPORATE PERFORMANCE OF MANUFACTURING SECTOR IN PAKISTAN 2013The relative importance of working capital management and its components to SMEs' profitability 2013Working Capital Management and Firm Profitability : Empirical Evidence from Manufacturing and Construction Firms Listed on Nairobi S ecurities Exchange, Kenya

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