The Impact of Working Capital Management on the Profitability of Manufacturing Companies Listed on the Ghana Stock Exchange

Abstract

The purpose of the study is to examine the impact of working capital management on the performance of some selected listed manufacturing companies in Ghana. To achieve this, 10 manufacturing firms listed on the Ghana Stock Exchange were employed. Data was sourced from firm annual financial report for a period of Nine (9) years from 2009-2017. The panel regression model was used for the analysis. With two performance indicators; return on asset and return on equity, the study found the average collection period, cash conversion cycle and liquidity independent variables to have significant implications on the return on asset variable of the manufacturing companies employed in this study. The average collection period and cash conversion cycle were found to have a negative and significant relationship with return on asset while liquidity have a positive and significant relationship with return on asset. Also, the average collection period, net trading cycle and the business size were found to have significant impact on return on equity. The average collection period and net trading cycle were found to have a positive and significant relationship with return on equity while the business size had a negative and significant relationship. It is recommended that firms should strive to have a shorter cash conversion cycle to make manufacturing firms more efficient in managing the cash flow. Manufacturing firms need to collect accounts receivables more quickly, through improving the efficiency of the collection processes, offering discounts and charging interest on overdue accounts. Key words: Manufacturing Firms, Working Capital Management, Performance, Stock Exchange