Impact of Working Capital Management on Firm’s Profitability: Evidence from the Fuel and Power Companies Listed on the Dhaka Stock Exchange
Keywords:
Working Capital, Profitability, Cash Conversion Cycle, Average days of collection period, Inventory turnover period, Deferred payables Period, Efficiency ratio, Net working capital turnover.Abstract
This study investigated the impact of working capital management on the
profitability of fifteen listed fuel and power companies in Bangladesh. The ratios
used for this study to measure the working capital efficiency included time interest
ratio (TIE), quick ratio (QR), cash conversion cycle (CCC), accounts receivables
collection period (ARCP), accounts payable payment period (APP), inventory
processing period (IPP), cash to current liability (CCL), cash to sales (CTS) ratios
and net working capital (NWC) turnover and debt to equity ratio (D/E). The
corporate profitability was measured by return on assets (ROA) and net profit
margin (NPM). The data were collected from the annual reports of the companies
from 2007 to 2011. Analysis of multiple regression and correlation matrix reveals
that measurable association exists between the dependent and selected independent
variables. NPM and TIE showed significant positive relations with ROA while CCL
and accounts payables payment period (APP) showed a significant positive
influence on NPM and D/E exhibited significant negative influence on NPM.
