Working capital management and corporate profitability of listed companies in South Africa

Abstract

Working capital management plays a significant role in creating value for shareholders. The objective of this study was to investigate the relationship between working capital management and profitability of companies listed on the Johannesburg Stock Exchange for the period 1998 to 2008. The results revealed a statistically negative significant relationship between profitability (as measured through gross operating profit), the cash conversion cycle, the net trade cycle and number of days accounts receivable. The results further revealed a positive significant relationship between the number of days accounts payable, the number of days inventory and gross operating profit. The results suggest that managers can increase their companies' profitability by effectively managing the cash conversion cycle and/or the net trade cycle.