Abstract
In every organization, corporate finance deals with three decisions: capital structure decisions, capital budgeting decision, and working capital management decisions. Among these three decisions, working capital management is recognized as an important concern of the financial manager. The study examines the effects of working capital management on profitability of manufacturing companies in Dire Dawa city and have the following research objectives: Examine the effect of number of days account receivable (NDAR) on profitability of manufacturing companies, Examine the effect of number of days inventories (NDI) on profitability of manufacturing firms, To investigate the effect of no of days account payable (NDAP) on profitability of manufacturing firms and Examine the effect of cash conversion cycle (CCC) on profitability of manufacturing firms. The research was quantitative that utilizes secondary data of companies from 2011 – 2015 for sample of 14 companies to address the objectives. The study purposively selected Dire Dawa city this is because of the majority of the Eastern region industries found in this city. The secondary data was collected from different company’s records about from audited balance sheet and income statement that was submitted to Ethiopian revenue and custom authority Dire Dawa branch and Dire Dawa Administration Revenue Authority for tax purpose. The result of the study shows that there is significantly negative relationship between number of date account receivable, number of day’s inventory holding and company’s profitability. The study reveals that there is no significant relationship between number of days account receivable and profitability. But cash conversion cycle has significant negative relationship with profitability. Moreover debt ratio has statistically negative relationship with company’s profitability.
Highlights
To determine the firm’s profitability, the finance manager need to take into account the firms working capital management, which basically means managing the firm’s current assets and current liabilities at satisfactory level [1]
In this study to assess the efficiency of working capital management of companies, components like cash conversion cycle, account receivable period, inventory holding period, account payable period together with controlling variables like firm size, current ratio debt ratio and sales growth are used to examine the effect of working capital management on profitability of manufacturing companies in Dire Dawa city
The study aimed at determining the effects of working capital management on profitability of manufacturing companies in Dire Dawa city for a period covering from 2011 to 2015
Summary
Working capital management (WCM) is the process of regulating and controlling current asset and current liabilities of a firm to ensure firm’s objectives are met and healthy operation of the firms are take place. Research conducted on Profitability versus risk trade-off reflects both the management of working capital, which Consists of shortterm assets, and the corporate decisions concerning long-term profitability Targets for firms In short this trade-off suggests that when managers manage their working Capital efficiently they have less cash stocked in the firm, which can be paid out to the Shareholders increasing their wealth [5]. In this study to assess the efficiency of working capital management of companies, components like cash conversion cycle, account receivable period, inventory holding period, account payable period together with controlling variables like firm size, current ratio debt ratio and sales growth are used to examine the effect of working capital management on profitability of manufacturing companies in Dire Dawa city
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
