Scribd
Upload
5 views18 pages

Research 1

REsearch

Uploaded by

Hïwøt Elfenesh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
5 views18 pages

Research 1

REsearch

Uploaded by

Hïwøt Elfenesh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 18

Title: Effect of Working Capital Management on

Firms’ Profitability: The Case of Private Large-


Scale Manufacturing Firms in Addis Ababa

Name: Hiwot Worku Kifle

Advisor: : Temesgen D (PhD)

July, 2023 Addis Ababa, Ethiopia


Presentation Content

 Introduction
 Statement of the problem
 Objectives
 General Objective
 Specific Objective
 Conceptual Framework
 Methodology
 Result and Discussion
 Conclusion
 Recommendation
Introduction

 This presentation aims to provide insights into the role of effective


working capital management in determining a company's financial
health and operational success.
 Through this research, we will explore the relationship between working
capital management, profitability, and long-term sustainability, shedding
light on valuable strategies for optimizing working capital in business
ventures.
Statement of the problem

 The manufacturing sector in Ethiopia lacks comprehensive working


capital management practices, which may obstruct profit and value
maximization for organizations.
 Furthermore, the relationship between working capital management and
profitability remains unclear, with contradictory results from previous
studies.
 Therefore, this study aims to examine the effects of working capital
management on the profitability of manufacturing firms in Ethiopia.
Objectives

 General Objective
 The General objective of the study is to investigate the effects of working
capital management on firms’ profitability in private large-scale
manufacturing firms in Addis Ababa, Ethiopia.
 Specific objectives
 To analyze the relationship between average collection period and profitability
of private manufacturing firms.
 To assess the relationship between inventories turnover in days and
profitability of private manufacturing firms’
 To analyze the relationship between average payment period and profitability
of private manufacturing firms.
 To assess the relationship between cash conversion cycle and profitability of
private manufacturing firms.
Conceptual Framework

Figure 1: Conceptual
frameworks
Methodology

 Research Design
 This study adopts an explanatory research design using quantitative research
methods.
 The main purpose is to determine the impact of working capital management
on the performance of manufacturing share companies in Ethiopia from 2017 to
2021.
 Research Approach
 The research approach is quantitative, aiming to identify the effect of working
capital management efficiency proxies on profitability.
 It utilizes secondary data obtained from audited financial statements.
 Quantitative research seeks to determine the association between variables.
Methodology

 Data Type and Data Source


 The data used in this study is secondary data.
 Copies of audited financial statements, including income statements and
statements of financial position, are used.
 Most of the data is obtained from the Ethiopian Revenues and Customs
Authority (ERCA), while some data is directly obtained from the respective
companies.
Methodology

 Population and Sample Size


 The population of the study consists of 10 manufacturing share companies in
Addis Ababa, Ethiopia.
 The selection of firms follows a purposive sampling method.
 Only manufacturing share companies are included to avoid bias, and the
sample comprises 50% of the population.
Methodology

 Sampling Technique and Method of Data Analysis


 The purposive sampling technique is used to select companies based on
specific criteria.
 The sample companies must be engaged in the manufacturing sector and
have a complete 5-year financial statement data from 2017 to 2021.
 The sample size is considered sufficient for appropriate generalization to the
overall population.
 For data analysis, inferential statistics are employed, including Pearson
correlation analysis and multiple regression models (Fixed Effects framework
and Ordinary Least Square) for panel data analysis.
Result and Discussion

 The research analyzed the performance of manufacturing firms and their


working capital variables.
 9 variables were used, including 4 proxies for working capital
investment and financing policies.
 Descriptive statistics
 Firstly, Descriptive statistics were used to analyze the variables, their ranges
and the variables of interest.
 In Table 4.1 presents the descriptive statistics for 10 manufacturing share
companies in Addis Ababa.
 The mean value of return on assets is 18%, with a standard deviation of
13.2%.
Result and Discussion

 Correlation Analysis
 Secondly, Correlation analysis was conducted to examine the relationship
between variables.
 Table 4.2 shows the correlation analysis results for profitability measure
(return on assets) with various working capital and control variables.
 Positive relationships were found between account receivable period and
profitability.
 Negative relationships were observed between inventory holding period and
profitability, as well as between accounts payable period and profitability.
 Cash conversion cycle showed a positive relationship with profitability.
Result and Discussion

 Regression Analysis
 Lastly, Regression analysis was performed to investigate the impact of
working capital components on profitability (return on assets).
 Four regression models were used, each focusing on different working capital
variables.
 The adjusted R-squared values ranged from 71.6% to 88.8%, indicating the
explanatory power of the models.
 Significant relationships were found between certain variables and
profitability, such as accounts receivable period, current ratio, and cash
conversion cycle.
 Size, growth, and leverage showed mixed results and were statistically
insignificant in some models.
Result and Discussion

 In Summary Result
 The results suggest that reducing inventory holding period and accounts
receivable period can improve profitability.
 The current ratio (liquidity measure) showed a positive relationship with
profitability.
 Accounts payable period had mixed results and was not consistently
significant.
 The cash conversion cycle had a negative relationship with profitability,
indicating the importance of efficient working capital management.
 The regression results supported some of the research hypotheses, while
others were rejected.
Findings

 Key Findings:
 A longer accounts receivable period is negatively correlated with firm
profitability.
 A longer accounts payable period is positively correlated with firm
profitability, but the relationship is not statistically significant.
 A longer cash conversion cycle is negatively correlated with firm profitability.
 A shorter inventory holding period is positively correlated with firm
profitability.
Conclusion

 Efficient working capital management enhances profitability.


 Shorter AR and IHP, longer AP periods lead to higher profitability.
 Reducing CCC and optimizing working capital components can increase
profitability.
Recommendation

 Firms should control their receivables and uncollectible accounts.


 Firms should engage in relationships with customers who allow short
payment periods.
 Firms should consider longer terms for accounts payable.
 Firms should optimize their inventory management and improve the
terms on which they sell goods and receive cash.
Thank you

You might also like