THE IMPACT OF WORKING CAPITAL MANAGEMENT ON FIRM PROFITABILITY: EVIDENCE FROM AGRO PROCESSING IN HAWASSA CITY, ETHIOPIA

Abstract

Working capital management is one of the most important and challenging aspect of the overall financial management that needs a series consideration in firm’s financial decision. Efficient management of working capital is a fundamental part of the overall corporate strategy in creating value. In light of this the purpose of this study was to examine the impact of working capital management on profitability of agro processing firm. In this study a sample of 10 agro processing firm was used. This sample was selected using purposive sampling technique. Document review was the data collection instruments. Data for this study was collected from the financial statements of the company listed on Hawassa for the year 2013-2022. Variables used in this study were inventory conversion period, accounts payable period, cash conversion cycle controlling for current ratio, firm leverage and sales growth. This study applied multiple linear regression analysis. The findings of the study revealed average payable period and inventory conversion period has significant impact and positive relation with profitability of firm and cash conversion cycle and current ratio have significant and negative relationship with the profitability. However, firm leverage and sales growth rate have not significant impact on the profitability of the firm. Thus, the study suggests that inventory conversion period direct relation with profitability may can be changed by reducing the rate of inflation.