The impact of working capital management on the firm's profitability

Abstract

Profitability refers to the state of financial gain production and is the primary goal of all business enterprises as, without it, a business will not last through the long-run. In relation to this, one of the top responsibilities of an entrepreneur is to maintain increasing profitability, and as such, they are in constant look-out to change business for the betterment of its profitability. In the same line of argument, efficient working capital management is believed to lead to enhanced firms' value creation. Therefore, this study aimed to determine the effects of working capital management on the profitability of Saudi organizations, particularly the cement sector. This study’s significance lies in the clarification of the capital management’s role in organizational success and their contribution to increasing liquidity and profitability while maintaining financial appropriateness, particularly in the face of limited external financial assistance. The study aimed to determine the obstacles and issues that Saudi cement companies face in their working capital application and to determine the effect of its variables, namely liquidity management, inventory management, working capital turnover, and receivable conversion period on the Saudi cement manufacturing companies performance. The secondary was gathered from 13 Saudi cement companies for the years from 2015 to 2020. Data collection was analyzed, and the results were presented along with recommendations for future studies.