The Impact of Working Capital Management on Profitability of Petroleum Retail Firms: Empirical Evidence from Ghana

Abstract

The study examined the impact of working capital management (WCM) on the profitability of petroleum retail firms (PRFs) in Ghana over a six year period (2008-2013). Audited annual reports from a sample of five selected petroleum retail firms in Ghana are employed in the study. Using, descriptive analysis, correlation and regression analysis, the results indicate that, in the PRFs in Ghana, there is favourable net working capital for the firms and a favourable networking capital to total assets ratio. The most important WCM component that drives the firm’s profitability, measured in return on assets (ROA), is average days payable (ADP). The rest of WCM components, cash conversion cycle (CCC), average days inventory (ADI) and average days receivables (ADR) did not have significant relationship with profitability. The study further found that WCM practices among the five selected PRFs support the conservative strategy of WCM, rather than an aggressive WCM strategy. Theoretical and managerial implications are discussed.