The effect of working capital management on profitability

A study on manufacturing companies in Bangladesh

Authors

DOI:

https://doi.org/10.20525/ijrbs.v9i6.872

Keywords:

Working Capital Management, Profitability, Manufacturing Companies, and Bangladesh.

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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Published

2020-10-27

How to Cite

Hossain, T. (2020). The effect of working capital management on profitability: A study on manufacturing companies in Bangladesh. International Journal of Research in Business and Social Science (2147- 4478), 9(6), 114–122. https://doi.org/10.20525/ijrbs.v9i6.872

Issue

Section

Special Topics in Financial Ecosystem