The Impacts Of Working Capital Management Of Firms Profitability

The purpose of this study is to investigate the impact of working capital management onrnfirms’ profitability. The study aims to examine the statistical significance between firms’rnworking capital management and profitability.rnIn light of this objective the study adopted quantitative method of research approaches to testrna series research hypothesis. Specifically, the study used survey of documentary analysis ofrncompanies’ audited financial statements. Stratified sampling design was employed based onrnnature and turnover of companies. Then companies were selected based on simple randomrnsampling method from each stratum’s to avoid biases and represent firms from each sub-rnclassification (stratum’s) within manufacturing companies. Consequently, the study selectedrna sample of thirteen (13) companies for the period of five years (2005-2009) with the total ofrn65 observations. Data was then analyzed on quantitative basis using Pearson’s correlationrnand OLS regression analysis.rnThe results showed that there is statistical significance negative relationship betweenrnprofitability and working capital management. It means that, companies managers canrncreate profits or value for their companies and share holders by handling correctly the cashrnconversion cycle and keeping each different component of working capital to a possiblernoptimum level. The researcher found that there is a significant negative relationship betweenrnliquidity and profitability. Moreover the study finds that there is strongly significancernpositive relationship between size and firm profitability. Unlike, the study found that there isrnno statistically significance negative relationship between debt used and firms profitability.rnKeywords: working capital, working capital management, firm size, cash conversion cyclernand profitability

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