The Impact of Working Capital Management on Profitability of Croatian Software Companies

Abstract

The idea that working capital management impacts profitability and risk of a company is generally accepted and in last 10-15 years has acquired a substantial interest. Accordingly, from the aspect of the measure of efficiency of working capital management, the objective of this paper is to evaluate working capital management impact on profitability of Croatian software companies. This impact was examined using descriptive and correlation as well as panel regression analysis for six-year period (2008-2013). The results show that after controlling for characteristics of the company and macroeconomic conditions working capital management significantly affects the profitability of Croatian software firms. Moreover, the results imply the existence of a nonlinear, concave quadratic relationship between the net working capital and return on assets. This suggest the existence of an optimal level of net working capital that balances costs and benefits and maximizes profitability of analysed companies.