Quadratic Relationship between Working Capital Management and the Profitability of Listed Manufacturing Companies in Ghana

Abstract

As of late, analysts have led concentrates to explore the straight connection that may exist between working capital administration and profitability. Some researchers have discovered a positive linear connection between working capital administration and profitability while others have discovered a negative straight connection between working capital and profitability. A couple of different specialists have likewise discovered blended outcomes with regards to the connection between working capital administration and profitability. Is it possible that the researchers finding a positive linear connection between working capital administration and profitability are seeing one side of a maximum quadratic curve while the studies that found a negative straight connection are also taking a gander at the opposite side? This study consequently looks to analyze the quadratic connection that may exist between working capital administration and profitability and furthermore endeavor to determine the ideal working capital policies that would guarantee greatest profitability. Listed manufacturing companies in Ghana were the entities used for this study. The study considered the audited annual financial statements of these entities from 2006 to 2015. The results of the investigation revealed that there is a quadratic connection between working capital management and profitability and that there is an optimum cash conversion cycle period, receivables collection period, inventory turnover period and payables payment period that would have maximum positive impact on profitability measured by net profit margin.