Effect of working capital management on firm profitability: the case of listed manufacturing firms on the Ghana Stock Exchange.
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Date
2016-07
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KNUST
Abstract
The impact of working capital management on the profitability of manufacturing firms
has attracted the attention of researchers in different countries of the world in recent
times. Working capital is needed for day-to-day operations of a firm. This research
expands the horizon of knowledge in this area by shedding more light on working capital
management as measured by the cash conversion cycle and how the individual
components of the cash conversion cycle influence the profitability of listed
manufacturing firms in Ghana. The primary purpose of this research was therefore to
examine the effect of working capital management on firm profitability. More
manufacturing firms would have been covered for the study, but due to lack of complete
data on some of the manufacturing firms, only seven listed manufacturing firms were
selected. ROA was used to measure profitability. The descriptive statistics, correlation
matrix of the variables and the regression analysis were based on a panel sample of listed
manufacturing firms on the Ghana Stock Exchange. The results revealed a negative
relationship between number of days accounts receivable, number of days inventory, the
cash conversion cycle: and the profitability. In addition, there was a positive relationship
between the number of days accounts payable and the profitability. Therefore managers
can increase the profitability of their firms by shortening the number of days accounts
receivable, number of days inventory and the cash conversion cycle. However, the
number of days accounts payable is expected to be relatively longer than the number of
days accounts receivable in order to increase profitability. In the nut shell, the outcome
of the research clearly pinpoint that working capital management as represented by the
cash conversion cycle accompanied by the control variables influence firm profitability.
Description
A Thesis Submitted Department Of Accounting And Finance In Partial Fulfillment Of The Requirement For The Award Of Masters Degree In Business Administration (Accounting Option).