IS WORKING CAPITAL MANAGEMENT IMPORTANT? EMPIRICAL EVIDENCE FROM MANUFACTURING COMPANIES IN GHANA

Abstract

The objective of the study is to empirically examine the effect of working capital man- agement on performance of manufacturing firms in Ghana. The study used six listed man- ufacturing companies on the Ghana Stock Exchange for the period 2008-2014. Correlation and regression analyses were used to analyze the effect of working capital management on manufacturing firms’ performance. The study examines the effect of different components of working capital management on firm’s performance. The study finds that the current ra- tio, average collection period and the accounts payable period have positive effect on profit- ability. However, only the current ratio has statistical significance. Also, while inventory conversion period as well as the cash conversion cycle have negative effect on performance, they are all statistically insignificant. It is recommended that finance managers should implement efficient and effective ways of managing working capital management. Em- phasis should be placed on average payment period, improving sales growth and main- taining higher current ratio.