Working Capital Management and Profitability of Manufacturing Firms in Ghana

Working capital management is a very important component of corporate finance because it directly affects the liquidity and profitability of the company. It deals with current assets and current liabilities. The purpose of this study is to investigate the relationship between working capital management and profitability for 15 manufacturing companies listed on the Ghana Stock Exchange over a period of 2011 to 2015, using panel least squares regression. The results indicate a significant negative relationship between return on assets and accounts receivable, inventory turnover, accounts payable, and cash conversion cycle. This suggests that managers can create value for their shareholders by reducing the number of day’s accounts receivable and inventories to a reasonable minimum. The negative relationship between accounts payable and profitability is consistent with the view that less profitable firms delay in settling their bills.