The Impact of working capital turnover on profitability: A case study based on Jordanian banks

Abstract

The aim of this research is to examine if the profit earned by Jordanian banks influenced by change in working capital turnover. Previous researchers depend on different metrics to evaluate how working capital turnover affects earnings, however, in this study utilize return on assets and return on equity as indicators of profitability, and use the ratio of revenue attributed to average working capital as a metric for measuring the working capital turnover. To achieve this objective, The chosen sample consists of 7 traditional banks operating in Jordan, and panel data analysis is utilized to examine the period spanning from 2015 to 2019. Data analysis was conducted using fixed effect models. In this research, we used profitability as dependent variable and working capital turnover as independent variable. The results show that profitability measured by ROE was negatively impacted by working capital turnover, while insignificant impact on ROA.