Impact Of Working Capital Management On Profitability Of Manufacturing Share Companies In Ethiopia

The purpose of this study is to examine the impact of working capital management onrnprofitability of manufacturing share companies in Ethiopia with special reference to large taxrnpayers. In light of this objective the study adopted quantitative approaches to test a series ofrnresearch hypotheses. Financial statements of a sample of sixteen (16) manufacturing sharerncompanies is used for a period of seven years (2008-2014) with the total of 112 observations.rnData was analyzed on quantitative basis using descriptive and regression analysis (OrdinaryrnLeast Square) method. Proportionate random stratified sample was used.It examined therncomponents in working capitalsuch as accounts receivable period, inventory holding period,rnaccounts payable period, and cash conversion cycle in relation to return on asset (ROA).Inrnaddition the study used current ratio, used as liquidity indicator; firm size, as measured byrnlogarithm of sales; firm growth rate as measured by change in annual sales and financialrnleverage, as control variables.The key findings from the study are; Firstly, there exists arnsignificant negative relationship between average collection period and profitabilityrnindicating that an increase in the number of days a firm receives payment from sales affectsrnthe profitability of the firm negatively; secondly, there exists a negative relationship betweenrninventory holding period with profitability andpositive relationship between accountsrnpayable period and profitability. But, both inventory holding period and accounts payablernperiod was found to be insignificant in affecting profitability of the firms. Thirdly, there existsrna negative relationship between cash conversion cycle and profitability of the firm. Whichrnindicates that as the cash conversion cycle decreases it leads to an increase in profitability ofrnthe firm, and managers can increase profitability of their firms by shortening the time lagrnbetween a firm’s expenditure for purchases of raw materials and the collection of sales ofrnfinished goods. Finally, positive relationships between liquidity and profitability measuresrnhave also been observed.In general the study recommended that firms should minimizernworking capital management components in order to maximize profitability

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