Abstract
PurposeThis study aimed to find out whether working capital management policies affect the profitability of manufacturing companies listed on the Qatar Stock Exchange.Design/methodology/approachTo assess the working capital management and profitability relationship, the authors applied a multiple regression analysis methodology in all manufacturing companies listed on the Qatar Stock Exchange (ten firms) between 2015 and 2019. Average collection period, inventory turnover, average payment period and cash conversion cycle were adopted as proxies for working capital management, and profitability was measured by operating profit margin (OPM), return on assets (ROA), return on capital employed (ROCE) and return on equity (ROE).FindingsThe study found that companies with shorter receivables collection periods and cash conversion cycles are more profitable. Longer inventory turnover periods and accounts payable payment periods are related to higher profitability of the firms.Originality/valuePrevious studies have assessed the relationship between working capital management and profitability. However, this study is the first one to use these four variables combined (OPM, ROA, ROCE and ROE) to measure profitability; this is what was limited in previous studies. In comparison, the previous studies were not comprehensive in studying the impact of working capital management on profitability from all aspects of profitability's variables [operational (OPM), economic (ROA), capitalist (ROCE) and financial (ROE)]. However, this study focused on all these aspects to make the results of the study more accurate. Also, it is worth mentioning that this study is the first research performed on Qatar Stock Exchange, although Qatar has achieved remarkable progress in the industrial sector in recent years, making it one of the first industrialized countries in the Middle East.
Highlights
Working capital management (WCM) is one of the challenges faced by companies, which can provide a convenient and appropriate level of liquidity for enabling companies to cover their short-term financial obligations – resulting from financing their operations – in order to ensure the continuity of the companies’ business and maximize their profitability
The alternative hypothesis was accepted, which states that there is a significant relationship between WCM represented by accounts receivable, inventory, accounts payable and cash conversion cycle on operating profit margin (OPM) in the listed manufacturing companies on Qatar Stock Exchange (QSE) with F-sig (0.000)
Where the value of Adjust R2 was À0.036, it was less than 20%, which means the independent variables of WCM and the control variables could not explain the variance in the dependent variable (ROE)
Summary
Working capital management (WCM) is one of the challenges faced by companies, which can provide a convenient and appropriate level of liquidity for enabling companies to cover their short-term financial obligations – resulting from financing their operations – in order to ensure the continuity of the companies’ business and maximize their profitability. Maintaining increased levels of current assets leads the company to achieve unprofitable profits on its total short-term investments. Relatively few current assets will make the firm vulnerable to difficulties and problems, perhaps rapid failure in managing the firm’s operations, reducing the firm’s capabilities to meet its short-term financial obligations, and increasing the firm’s exposure to liquidity risk. Companies strive to balance risks and returns resulting from investing in current assets to reach the optimum level of investment in working capital (Tsagem et al, 2015)
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