The Relationship between Working Capital Management and Profitability for Industrial Companies Listed in Amman Stock Exchange

Raghad Fawzi Sharaf, Fayez Salim Haddad

Abstract


The aim of this study is to analyze the relationship between working capital management components and profitability. The relationship between working capital management and profitability is examined using panel data analysis for a sample consists of 43 industrial companies listed in Amman Stock Exchange in Jordan, during the period (2000 - 2012). The results of regression analysis show a significant negative relationship between cash conversion cycle and profitability. This indicates shorting cash conversion cycle improve company profitability. Moreover, the managers can create value for their shareholders by shortening the number of collection payments period and inventories conversion period. The result also showed that there is positive relationship between payables deferral period and return on equity as a measurement of profitability. Furthermore, profitability increases with size and sales growth and decreases with leverage.

Keywords


Working Capital Management, Profitability, Receivables Collection Period, Inventories Conversion Period, Payables Deferral Period, Cash Conversion Cycle, Amman Stock Exchange, Jordan

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