The Relationship Between Working Capital Management and Financial Performance
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This paper explores the connection between working capital management and business profitability. Working capital management is vital in making sure that firms are able to manage their liquidity effectively and also handle short-term liabilities and assets. The main aim of the current study is to analyze the effect of various elements of working capital management on profitability of the firm. These elements include Cash Conversion Cycle, Inventory Conversion Period, Average Collection Period, and Average Payment Period. Quantitative research methodology is applied in this study with the use of secondary financial data in conducting descriptive, correlation, and multiple regression analyses. It is discovered that effective working capital management positively influences profitability. In particular, it is noted that short cash conversion cycles and efficient management of receivables and inventory result in high rates of return on assets.
Keywords
Business Profitability, Cash Conversion Cycle, Financial Performance, Working Capital Management