The Impact of Working Capital Management on Firm Profitability: Evidence from Selected Wholesale Trade Firms in Addis Ababa, Ethiopia

Abstract

Working capital management has a vital role for the success or failure of a firm because of its paramount impact on profitability and liquidity. The purpose of this study is to examine the impact of working capital management on profitability of large tax payer wholesale firms found in Addis Ababa city. The study used audited financial statement of 62 purposively selected wholesale firms for a period of 5 years from2015 to 2019. Data had been analysed by descriptive statistics and a multiple regression. The finding shows that CATAR and IHP had a significant positive relation with profitability meaning that firms maintains optimal level of inventory and higher level of current asset leads towards profitability respectively. Furthermore, negative and significant relationship between APP and CCC with profitability implies that a firm paying its obligation with earlier time and the shorter a time gap between cash outflows and inflows leads to higher profitability respectively. However, ARP and CLTAR had insignificant positive and negative relation with profitability respectively. To summarize, the study conclude that working capital management significantly affect profitability of wholesale firm.

Keywords: Working capital management, working capital policy, Profitability, wholesalers, and panel data

DOI: 10.7176/DCS/11-8-01

Publication date:October 31^st 2021