The Impact Of Working Capital Management On The Profitability Of Listed Banks: The Ghanaian Economy Experience

Abstract

The study examined the impact of working capital management practices on the profitability of banks listed on the Ghana Stock Exchange from 2012 to 2022. The study had three specific objectives to determine the relationship between cash conversion cycle and profitability; to determine the relationship between acid ratio and profitability of banks, and to determine the relationship between loan to deposit ratio and profitability of banks. The study was quantitative in nature and used secondary data (audited financial records of banks listed on the Ghana Stock Exchange from 2012 to 2022) of five banks. The data were retrieved purposively. Stata (StataCorp, Texas, USA) was used to analyze the data. The linear regression model was used to analyze the data after Pearson correlation was done. The study found a negative significant association between cash conversion cycle and return on capital employed after controlling for bank size, leverage and debt. This was consistent with study’s hypothesis. This implies that effective cash management is key to commercial banks performance. Also, acid ratio was positive and significantly associated with profitability of banks. Again, the profitability of commercial banks is accounted for by loan to deposit ratio. The study concludes that the profitability of banks is significantly associated with working capital management. That is, when working capital is well managed, commercial banks are better able to meet their short-term commitments as and when they fall due. This enables the commercial banks to operate efficiently without any interruptions. It is recommended that finance managers of commercial banks list on the Ghana Stock Exchange pay external attention to the cash position of their banks at all times.