Assessing the Effect of Working Capital Management on the Profitability of Small Business in Chiro Town, West Hararghe Zone, Ormia Region, Ethiopia

Abstract

An optimal working capital management is expected to contribute certainly to the profitability of firms. The main purpose of the study was to assess the effect of working capital management on profitability of small business in Chiro town, West Hararghe, Ethiopia. To collect primary data semi-structured questionnaire survey and key informant interview were employed. By using non-probabilistic purposive sampling technique, cross-sectional data were collected from 15 sampled small businesses. The effect of the inventory conversion period, accounts receivable period, accounts payable period and cash conversion cycle on return on asset was analyzed through descriptive statistics, Pearson’s Correlation and linear regression by using SPSS version 20. The result shows that there is positive relationship between accounts receivable period and accounts payable period with profitability of small business. However, inventory conversion period and cash conversion cycle have a negative significant impact on profitability.

Keywords: Working capital Management, Small business, Profitability and Ethiopia.

DOI: 10.7176/RJFA/11-15-03

Publication date:August 31^st 2020