The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City

Abel Mesfin Girma

doi:doi:10.11648/j.sjbm.20190706.11

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The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City

Abel Mesfin Girma

Published in Science Journal of Business and Management (Volume 7, Issue 6)

Received: 30 July 2019 Accepted: 21 September 2019 Published: 27 November 2019

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Abstract

In every organization, corporate finance deals with three decisions: capital structure decisions, capital budgeting decision, and working capital management decisions. Among these three decisions, working capital management is recognized as an important concern of the financial manager. The study examines the effects of working capital management on profitability of manufacturing companies in Dire Dawa city and have the following research objectives: Examine the effect of number of days account receivable (NDAR) on profitability of manufacturing companies, Examine the effect of number of days inventories (NDI) on profitability of manufacturing firms, To investigate the effect of no of days account payable (NDAP) on profitability of manufacturing firms and Examine the effect of cash conversion cycle (CCC) on profitability of manufacturing firms. The research was quantitative that utilizes secondary data of companies from 2011 – 2015 for sample of 14 companies to address the objectives. The study purposively selected Dire Dawa city this is because of the majority of the Eastern region industries found in this city. The secondary data was collected from different company’s records about from audited balance sheet and income statement that was submitted to Ethiopian revenue and custom authority Dire Dawa branch and Dire Dawa Administration Revenue Authority for tax purpose. The result of the study shows that there is significantly negative relationship between number of date account receivable, number of day’s inventory holding and company’s profitability. The study reveals that there is no significant relationship between number of days account receivable and profitability. But cash conversion cycle has significant negative relationship with profitability. Moreover debt ratio has statistically negative relationship with company’s profitability.

Published in	Science Journal of Business and Management (Volume 7, Issue 6)
DOI	10.11648/j.sjbm.20190706.11
Page(s)	135-139
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Working Capital Management, Number of Days Account Receivable, Profitability

References

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[2]	Dalayeen, A. B. (2017). Working capital management and profitability of the real estate industry in Jordan. An empirical study. Journal of Applied Finance and Banking, 2 (2), 49-57. Deloof, M., 2003.
[3]	Does Working Capital Management Affect Profitability of Belgian firms? Journal of Business Finance & Accounting, 30 (3 & 4) pp. 573-588.
[4]	Petersen, M. A. and Rajan R. G., 2007. Trade credit: theories and evidence: Review of Financial Studies, 10 (3) pp. 661-691.
[5]	Tewodros A, 2010. The Effect of Management of Working Capital Policies on Firms Profitability. Evidence from Manufacturing Private Limited Companies in Tigray region, Ethiopia.
[6]	Bibi, N., & Amjad, S. (2017). The relationship between liquidity and firm’s profitability: A case study of Karachi Stock exchange. Asian Journal of Finance and Accounting, 9 (1), 54-66.
[7]	Creswell, J. W., 2002. Research Design: Qualitative, Quantitative, and Mixed Methods Approaches 2nd ed. SAGE publications. inc.
[8]	Padachi, K., 2006. Trends in Working Capital Management and its Impact on Firms’ Performance: An Analysis of Mauritian Small Manufacturing Firms, International Review of Business Research Papers, 2 (2) pp. 45-58.
[9]	Zariyawati, M. A., Annuar, M. N., Taufiq, H. and Abdul Rahim, A. S., 2009. Working Capital Management and Corporate Performance: Case of Malaysia, Journal of Modern Accounting and Auditing, 5 (11) pp. 47-54
[10]	Pallant, J. F., 2009. SPSS Survival Manual, 3rd Ed, Sydney: Ligare Book Printer.
[11]	Reimann, C., Filzmoser, P., Garrett, R. G. and Dutter, R., 2008. Statistical Data Analysis Explained. Applied Environmental Statistics with R. John Wiley & Sons Ltd.
[12]	Falope, O. I. and Ajilore, O. T., 2009. Working Capital Management and Corporate Profitability: Evidence from Panel Data Analysis of Selected Quoted Companies in Nigeria, Research Journal of Business Management, 3 (3) pp. 73-84.
[13]	Mulualem, M., 2011. The Impact of Working Capital Management on Firm’s Profitability in Selected A. A Manufacturing Share Companies, (Unpublished Msc) Addis Ababa University: School of Public and Business Administration.
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[15]	Sharma, A. K. and Kumar, S., 2011. Effect of Working Capital Management on Firm Profitability: Empirical Evidence from India, Global Business Review, 12 (1) pp. 159-173.

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APA Style

Abel Mesfin Girma. (2019). The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City. Science Journal of Business and Management, 7(6), 135-139. https://doi.org/10.11648/j.sjbm.20190706.11

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Abel Mesfin Girma. The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City. Sci. J. Bus. Manag. 2019, 7(6), 135-139. doi: 10.11648/j.sjbm.20190706.11

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AMA Style

Abel Mesfin Girma. The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City. Sci J Bus Manag. 2019;7(6):135-139. doi: 10.11648/j.sjbm.20190706.11

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@article{10.11648/j.sjbm.20190706.11,
  author = {Abel Mesfin Girma},
  title = {The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City},
  journal = {Science Journal of Business and Management},
  volume = {7},
  number = {6},
  pages = {135-139},
  doi = {10.11648/j.sjbm.20190706.11},
  url = {https://doi.org/10.11648/j.sjbm.20190706.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.sjbm.20190706.11},
  abstract = {In every organization, corporate finance deals with three decisions: capital structure decisions, capital budgeting decision, and working capital management decisions. Among these three decisions, working capital management is recognized as an important concern of the financial manager. The study examines the effects of working capital management on profitability of manufacturing companies in Dire Dawa city and have the following research objectives: Examine the effect of number of days account receivable (NDAR) on profitability of manufacturing companies, Examine the effect of number of days inventories (NDI) on profitability of manufacturing firms, To investigate the effect of no of days account payable (NDAP) on profitability of manufacturing firms and Examine the effect of cash conversion cycle (CCC) on profitability of manufacturing firms. The research was quantitative that utilizes secondary data of companies from 2011 – 2015 for sample of 14 companies to address the objectives. The study purposively selected Dire Dawa city this is because of the majority of the Eastern region industries found in this city. The secondary data was collected from different company’s records about from audited balance sheet and income statement that was submitted to Ethiopian revenue and custom authority Dire Dawa branch and Dire Dawa Administration Revenue Authority for tax purpose. The result of the study shows that there is significantly negative relationship between number of date account receivable, number of day’s inventory holding and company’s profitability. The study reveals that there is no significant relationship between number of days account receivable and profitability. But cash conversion cycle has significant negative relationship with profitability. Moreover debt ratio has statistically negative relationship with company’s profitability.},
 year = {2019}
}

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TY  - JOUR
T1  - The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City
AU  - Abel Mesfin Girma
Y1  - 2019/11/27
PY  - 2019
N1  - https://doi.org/10.11648/j.sjbm.20190706.11
DO  - 10.11648/j.sjbm.20190706.11
T2  - Science Journal of Business and Management
JF  - Science Journal of Business and Management
JO  - Science Journal of Business and Management
SP  - 135
EP  - 139
PB  - Science Publishing Group
SN  - 2331-0634
UR  - https://doi.org/10.11648/j.sjbm.20190706.11
AB  - In every organization, corporate finance deals with three decisions: capital structure decisions, capital budgeting decision, and working capital management decisions. Among these three decisions, working capital management is recognized as an important concern of the financial manager. The study examines the effects of working capital management on profitability of manufacturing companies in Dire Dawa city and have the following research objectives: Examine the effect of number of days account receivable (NDAR) on profitability of manufacturing companies, Examine the effect of number of days inventories (NDI) on profitability of manufacturing firms, To investigate the effect of no of days account payable (NDAP) on profitability of manufacturing firms and Examine the effect of cash conversion cycle (CCC) on profitability of manufacturing firms. The research was quantitative that utilizes secondary data of companies from 2011 – 2015 for sample of 14 companies to address the objectives. The study purposively selected Dire Dawa city this is because of the majority of the Eastern region industries found in this city. The secondary data was collected from different company’s records about from audited balance sheet and income statement that was submitted to Ethiopian revenue and custom authority Dire Dawa branch and Dire Dawa Administration Revenue Authority for tax purpose. The result of the study shows that there is significantly negative relationship between number of date account receivable, number of day’s inventory holding and company’s profitability. The study reveals that there is no significant relationship between number of days account receivable and profitability. But cash conversion cycle has significant negative relationship with profitability. Moreover debt ratio has statistically negative relationship with company’s profitability.
VL  - 7
IS  - 6
ER  -

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Author Information

Abel Mesfin Girma

Department of Management, Jigjiga University, Jigjiga, Ethiopia

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Plain Text BibTeX RIS

APA Style

Abel Mesfin Girma. (2019). The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City. Science Journal of Business and Management, 7(6), 135-139. https://doi.org/10.11648/j.sjbm.20190706.11

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ACS Style

Abel Mesfin Girma. The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City. Sci. J. Bus. Manag. 2019, 7(6), 135-139. doi: 10.11648/j.sjbm.20190706.11

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AMA Style

Abel Mesfin Girma. The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City. Sci J Bus Manag. 2019;7(6):135-139. doi: 10.11648/j.sjbm.20190706.11

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@article{10.11648/j.sjbm.20190706.11,
  author = {Abel Mesfin Girma},
  title = {The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City},
  journal = {Science Journal of Business and Management},
  volume = {7},
  number = {6},
  pages = {135-139},
  doi = {10.11648/j.sjbm.20190706.11},
  url = {https://doi.org/10.11648/j.sjbm.20190706.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.sjbm.20190706.11},
  abstract = {In every organization, corporate finance deals with three decisions: capital structure decisions, capital budgeting decision, and working capital management decisions. Among these three decisions, working capital management is recognized as an important concern of the financial manager. The study examines the effects of working capital management on profitability of manufacturing companies in Dire Dawa city and have the following research objectives: Examine the effect of number of days account receivable (NDAR) on profitability of manufacturing companies, Examine the effect of number of days inventories (NDI) on profitability of manufacturing firms, To investigate the effect of no of days account payable (NDAP) on profitability of manufacturing firms and Examine the effect of cash conversion cycle (CCC) on profitability of manufacturing firms. The research was quantitative that utilizes secondary data of companies from 2011 – 2015 for sample of 14 companies to address the objectives. The study purposively selected Dire Dawa city this is because of the majority of the Eastern region industries found in this city. The secondary data was collected from different company’s records about from audited balance sheet and income statement that was submitted to Ethiopian revenue and custom authority Dire Dawa branch and Dire Dawa Administration Revenue Authority for tax purpose. The result of the study shows that there is significantly negative relationship between number of date account receivable, number of day’s inventory holding and company’s profitability. The study reveals that there is no significant relationship between number of days account receivable and profitability. But cash conversion cycle has significant negative relationship with profitability. Moreover debt ratio has statistically negative relationship with company’s profitability.},
 year = {2019}
}

Copy | Download

TY  - JOUR
T1  - The Effects of Working Capital Management on Profitability of Manufacturing Companies: The Case of Dire Dawa City
AU  - Abel Mesfin Girma
Y1  - 2019/11/27
PY  - 2019
N1  - https://doi.org/10.11648/j.sjbm.20190706.11
DO  - 10.11648/j.sjbm.20190706.11
T2  - Science Journal of Business and Management
JF  - Science Journal of Business and Management
JO  - Science Journal of Business and Management
SP  - 135
EP  - 139
PB  - Science Publishing Group
SN  - 2331-0634
UR  - https://doi.org/10.11648/j.sjbm.20190706.11
AB  - In every organization, corporate finance deals with three decisions: capital structure decisions, capital budgeting decision, and working capital management decisions. Among these three decisions, working capital management is recognized as an important concern of the financial manager. The study examines the effects of working capital management on profitability of manufacturing companies in Dire Dawa city and have the following research objectives: Examine the effect of number of days account receivable (NDAR) on profitability of manufacturing companies, Examine the effect of number of days inventories (NDI) on profitability of manufacturing firms, To investigate the effect of no of days account payable (NDAP) on profitability of manufacturing firms and Examine the effect of cash conversion cycle (CCC) on profitability of manufacturing firms. The research was quantitative that utilizes secondary data of companies from 2011 – 2015 for sample of 14 companies to address the objectives. The study purposively selected Dire Dawa city this is because of the majority of the Eastern region industries found in this city. The secondary data was collected from different company’s records about from audited balance sheet and income statement that was submitted to Ethiopian revenue and custom authority Dire Dawa branch and Dire Dawa Administration Revenue Authority for tax purpose. The result of the study shows that there is significantly negative relationship between number of date account receivable, number of day’s inventory holding and company’s profitability. The study reveals that there is no significant relationship between number of days account receivable and profitability. But cash conversion cycle has significant negative relationship with profitability. Moreover debt ratio has statistically negative relationship with company’s profitability.
VL  - 7
IS  - 6
ER  -

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