Effects of Working Capital Management on Firm’s Profitability: A Study on the Firms Listed Under DSE in Bangladesh

Md. Shakhaowat Hossin* and Sohana Begum
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Md. Shakhaowat Hossin*: Assistant Professor, Department of Finance and Banking, Begum Rokeya University, Rangpur, Bangladesh
Sohana Begum: MBA, Department of Finance and Banking, Begum Rokeya University, Rangpur, Bangladesh

International Journal of Economics and Financial Research, 2020, vol. 6, issue 7, 130-138

Abstract: This paper investigates the relationship between working capital management and financial performance of Pharmaceuticals and Textile firms listed at the Dhaka Securities Exchange in Bangladesh. The data analysis was carried on ten Pharmaceuticals and Textile firms for a period of 2013 to 2017. Secondary Data was analyzed by applying Descriptive Statistics, Regression and Correlation analysis to findthe relationship of current ratio, inventory conversion period and average payment period with Return on Asset. The findings indicate that the Pharmaceuticals and Textile firms’ performance is influenced by the variables relating to working capital. There is a positive relationship between profitability and current ratioand Inventory Turnover period shows a negative relationship with profitability but Average payment period shows insignificant impact on profitability. The study concludes that there exists a relationship between working capital managementand financial performance of Pharmaceuticals and Textile firms in Bangladesh. The study recommends that for the Pharmaceuticals and Textile firms to remain profitable, they should employ working capital management practice that will help in making decisions about investment mix and policy, matching investment to objective, asset allocation for institution and balancing risk against profitability.

Keywords: Working capital management (WCM); Return on asset (ROA); Current asset (CA); Inventory turnover period; Account payable period (search for similar items in EconPapers)
Date: 2020
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