Abstract
Companies may have their level of optimal working capital that maximizes their values through the effective management of current liabilities and assets. Previously, many studies were made on the impact of working capital management on the company’s performance in different sectors; however, its impact on the performance of firms that are engaged in export activities was not given any consideration and this particular study has attempted to investigate the fundamental impact of working capital management on the export firm’s performance in Ethiopia. To analyze this particular study, a total of 164 exporters operating in Ethiopia have been taken as a sample and both primary and secondary data collection methods were used. The data gathered from the sample of the study were analyzed using a multiple linear regression model and the result reveals that working capital management which was measured by account receivables period, cash conversion cycle, and accounts payable period has a statistically significant and positive correlation with the performance of exporting firms in Ethiopia which was measured by both return on assets and return on investment. However, working capital management which was measured by the inventory conversion period has a statistically significant and positive impact on return on investment, but it has an insignificant impact on the performance of sampled export firms in Ethiopia which was measured by return on assets. Based on the result of the study, firms may need to extend credit terms for customers, may prolong their cash conversion cycle, may need an extended payment period, and may or may not hold a high volume of inventory. All extending periods and cycles shall be made up to the extent of attaining an optimal level of working capital and better to implement a conservative policy of working capital management. Thus, it is advisable to consider the result of this study while making decisions regarding their working capital management to support their performance.
Highlights
Background of the StudyToday’s financial management, the management of and control of working capital, needs huge attention and it is a difficult task due to the existence of a high portion of working capital in a business. e administration of current assets which has an accounting year to convert into cash and current liabilities which is payable within a year and the relationship among the two may be considered as working capital management [1].As it is known, both the current assets and current liabilities are presented in a given business. e current assets and current liabilities are vital for the operation of different businesses
To test the normality of the data the Shapiro–Wilk W test was used and based on the test result shown in Table 2, the p values for the first model (RTOA) are p ≤ 0.4 and for the second model (RTOI) are p ≤ 0.08, which are greater than 0.05 and the graph of Kernel density is bell-shaped for the two models; this implies that the data is normal
Conclusion and Recommendation e ultimate objective of this empirical study was to examine the impact of working capital management on the performance of exporting firms in Ethiopia
Summary
Background of the StudyToday’s financial management, the management of and control of working capital, needs huge attention and it is a difficult task due to the existence of a high portion of working capital in a business. e administration of current assets which has an accounting year to convert into cash and current liabilities which is payable within a year and the relationship among the two may be considered as working capital management [1].As it is known, both the current assets and current liabilities are presented in a given business. e current assets and current liabilities are vital for the operation of different businesses. E administration of current assets which has an accounting year to convert into cash and current liabilities which is payable within a year and the relationship among the two may be considered as working capital management [1]. As it is known, both the current assets and current liabilities are presented in a given business. As a result, working capital management is an effort to administrate, control, and manage the current assets
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