Financial Performance and Working Capital Management Practices in the Retail Sector: Empirical Evidence from South Africa

Athenia Bongani Sibindi,Garikai Mandipa

doi:10.3390/risks10030063

Abstract

This study examines the relationship between the financial performance and working capital management practices of South African retail firms listed on the Johannesburg Stock Exchange. The study sample comprised a panel of 16 South African retail firms for the period 2010–2019. A fixed-effects estimator was employed in the analysis. The working capital management was proxied by average age of inventory (AAI), average collection period (ACP), average payment period (APP), and cash conversion cycle (CCC), while the financial performance was proxied by net operating profit margin (NOPM), return on assets (ROA), and return on equity (ROE). The key findings of the study documented the following: (1) There is a negative relationship between average collection period and financial performance. (2) A negative relationship between average age of inventory and financial performance measures (NOPM and ROA) was found. (3) The average payment period was found to be negatively related to return on equity. (4) The cash conversion cycle and net operating profit margin variables were found to be negatively related. The study concludes that working capital management practices influenced the financial performance of the South African retail firms. It is recommended that South African retail firms observe prudent optimal working capital management practices, as these influence their financial performance.

Highlights

The South African economy has seen a structural shift from the primary to the tertiary sector since the early 1990s, and among the key sectors are retail and wholesale trade, which keep the economic engine of South Africa moving
The primary aim of this study is to investigate the nexus between working capital management practices and the financial performance of South African retail firms listed on the Johannesburg Stock Exchange (JSE)
The results showed that South African retail firms took 49.81 days, on average, to collect from debtors

Summary

Introduction

The South African economy has seen a structural shift from the primary (mining and manufacturing) to the tertiary (wholesale and retail trade) sector since the early 1990s, and among the key sectors are retail and wholesale trade, which keep the economic engine of South Africa moving. The retail and wholesale sectors, employ an estimated 22% of the national labor force. This positions the retail sector as an important sector in the overall South African economy (Stats SA 2021). The term “working capital management” refers to the management of current assets and liabilities. It entails the management of current assets and liabilities in direct proportion to a company’s liquidity and profitability (Deloof 2003; Afrifa et al 2014)

Objectives

Results

Conclusion