Working Capital Management and Its Effect on Profitability (A Case study on Finchaa Sugar Factory)

Adugna Megenasa Biru


The Working capital management plays an important role for success or failure of firms business because of its effect on firm’s profitability as well as on liquidity.  The aim of this study is to investigate the working capital management and its effect on profitability of Finchaa Sugar Factory (2007-2018). The study adopts explanatory research type. The necessary data required for this study was Secondary data. The secondary data was the audited financial statement of the firm for the period of 2007 to 2018.The researcher has studied the components of working capital and the effect of different variables including the day’s inventory outstanding, day’s sales outstanding, day’s payables outstanding and Cash conversion cycle on the profitability of the company. Debt ratio, sales growth and Current ratio are used as control variable.  The data was analyzed using correlation coefficients and multiple linear regression to study the relationship between variables. The result shows that Days inventory outstanding, day’s receivables outstanding, day’s payables outstanding, cash conversion cycle and sales growth are significantly affecting the profitability of the company. The Current ratio and debt ratio are insignificant in the research in affecting the profitability of the firm.

Keywords: Working Capital Management, profitability.

DOI: 10.7176/EJBM/11-28-06

Publication date:October 31st 2019

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ISSN (Paper)2222-1905 ISSN (Online)2222-2839

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