The Systematic Literature Review: An overview on Working Capital Management and Profitability

Abstract

This systematic review examines the relationship between working capital management (WCM) and profitability, with a focus on the impact of cash conversion cycle (CCC) on profitability. Out of the 53 independent studies analyzed, only those that used CCC as a measure for WCM were selected for analysis. The review found that efficient WCM, specifically the optimal level of CCC, has a significant impact on profitability. Firms should review their receivables and payable policy to maintain market value, shareholders' wealth, and minimize the risk of bankruptcy. Accelerating cash collections through proper management, effective policies, and corporate strategies also improves profitability. The study highlights CCC as a powerful tool for firms to manage their working capital efficiently. The review suggests that firms should maintain an optimal CCC level and effective management practices to improve WCM and profitability. Further research using qualitative research methods is needed to gain a deeper understanding of WCM practices.