Effect of Working Capital Management on Profitability of Listed Manufacturing Companies in Ghana

Working capital management plays a vital role in the success of businesses because of its effect on profitability. The purpose of this study is to examine the effect of working capital management on the profitability of listed manufacturing firms in Ghana. The study used secondary data collected from seven (7) manufacturing firms listed on the Ghana Stock Exchange for a period of ten years (2005-2014). The profitability as dependent variable was measured in terms of gross operating profit. The working capital was determined by Accounts Receivables Period, Accounts Payables Period, Inventory Conversion Period and Cash Conversion Cycle are used as independent variables. Moreover, current ratio used as liquidity indicator and firm size as measured by logarithm of sales are used as control variables. Data was analysed using the Fixed-Effects model of the Panel data regression. The regression results revealed that account receivables period (ARP) and inventory conversion period (ICP) days had a statistically significant negative impact on the profitability whiles account payables period (APP) days had insignificant positive effects on the profitability. The study, on the other hand found out that cash conversion cycle (CCC), current ratio (CR), and firm size (LOS) had a significant positive impact on the profitability. The study recommended that manufacturing firms should adopt efficient and effective ways of managing these components of working capital management.