Relationship Between Working Capital Management and Profitability: A Case of Tabreed (National Central Cooling Company PJSC)

Abstract

Working capital management is a function of management to decide the optimum level of the various items of working capital. Though the current assets do not help increasing productivity, they are very much important in carrying a successful business. Too much of working capital may lead to idle current assets and increase carrying cost of current assets and it reduces the profit. On the other hand, if too low working capital is maintained the business faces liquidity risk and may lead to bankruptcy. This study aims to investigate the relationship between profitability and the various components of current assets of Tabreed. Pearson simple correlation technique and multiple regression analysis were employed. The study showed that working capital turnover ratio, cash turnover ratio and debtors turnover ratio have positive association with return on investment and other ratios such as current ratio, quick ratio, current assets-to-total assets ratio, current assets-to-sales ratio, and inventory turnover ratio have negative association with profitability.