Working Capital Management and Profitability: A Study on Small and Medium Enterprises (SMEs) in Bangladesh

Abstract

Small and Medium Enterprises (SMEs) play a significant role in economic development by increasing economic growth, creating employment, increasing productivity, and ensuring sustainable social stability. This paper recognizes the impact of WCM on the profitability of SMEs in developing countries like Bangladesh. A total of one hundred forty-six entries from fifty SMEs have been used for the study covering a period of 2020 to 2022. All the data are collected from published financial statements. Descriptive statistics, correctional, and regression analyses were used performed in this study to determine the impact of WCM on the profitability of SMEs. This study's results indicate that SMEs' optimal working capital advances profitability significantly. The owners and management of SMEs should especially consider thedevote their focus on the WCM practices because as the Receivable Turnover (RecT), Inventory Turnover (InvT), Payable Turnover (PayT), and Cash Convention Cycle (CCC) have a significant impact on profitability.RecT, InvT, and CCC negatively impact profitability while PayT positively impact impacts profitability. Other variables like CR, DAR, and FS are used as the control variables and Return on Equity (ROE) is used as the proxy of profitability. The WCM significantly impacts profitability and creates investor's values.