International Journal of Entrepreneurship (Print ISSN: 1099-9264; Online ISSN: 1939-4675)

Abstract

The Role of Working Capital Management on profitability of Cement manufacturing companies in Ethiopia

Author(s): Asmamaw Yigzaw Chirkos

This study's objective is to assess how working capital management affects a company's profitability that means the main objective of the study is to examine the relationship between working capital management and profitability of cement manufacturing companies in Ethiopia. In order to achieve this goal, the study uses quantitative methods to examine a number of research hypotheses. Using a sample of four cement manufacturing enterprises, 24 observations were made during a six-year period (2017-2022). Using regression analysis and Pearson's correlation, data is quantitatively examined (Ordinary Least Square). The study's main conclusions are as follows: firstly, the firm's profitability and the cash conversion cycle have a favorable link. This indicates that when the cash conversion cycle grows, the firm's profitability will also grow. Managers can expand the cash conversion cycle to a suitable level in order to increase value for shareholders; Second, there is a negative correlation between profitability and liquidity, indicating that as profitability rises, liquidity declines; Finally, the average collection duration has a highly significant inverse association with profitability, showing that a reduction in the number of days a firm must wait before receiving payment from sales has a favorable impact on the profitability of the firm; Fourth, the average payment period and profitability have a highly significant positive association. This suggests that a company is more profitable the longer it takes to pay its creditors. Fifthly, there is a highly substantial inverse link between profitability and inventory turnover in days, suggesting that companies with low enough inventory levels save money on storage costs, which boosts profits.

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