THE EFFECTS OF WORKING CAPITAL MANAGEMENT ON THE PROFITABILITY OF PLANTATION AND PETROLEUM SECTOR IN MALAYSIA

Abstract

This study seeks to establish the influence of Working Capital Management (WCM) towards the profitability of Malaysia’s Plantation & Petroleum firms. This research was done on 50 companies registered in Kuala Lumpur Stock Exchange (KLSE), which covered the period of 2010 – 2014 with a total observation of 250 firms/years. The independent variables to measure working capital management include working capital turnover ra tio (WCTR), current ratio (CR), cash conversion cycle (CCC), inventory days (ID), receivables days (ARD) and payables days (APD) while, the dependent variable used are Return on Asset (ROA) and Return on Capital Employed (ROCE). This study adopted explanat ory research design. The sample of 50 companies for a time interval of 5 years was selected using simple probability sampling. The collected data was analyzed using descriptive means, Pearson correlation and multiple linear regressions via E-Views. Regress ion analysis was used in this research to examine the effect of working capital management on the profitability of the firms. Thus, the findings show insignificant relationship between Inventory Days (ID), Current Ratio (CR) and Payable Days (CP) on Return on Asset (ROA). However, the only significant relationship was found between Working Capital Turnover Ratio (WCTR) and Receivable Days (RD). Although this study included only 50 companies, future studies may include larger sample by conducting more organi zations and sectors that might reconsider a better result of significant relationship between Inventory Turnover Ratio, Working Capital Turnover Ratio (WCTR) and Collection Period (CP) on Return on Asset (ROA).