Impact of working capital management on profitability: evidence from listed companies in Qatar

Abstract

Purpose – This study aimed to find out whether working capital management policies affect the profitability of manufacturing companies listed on the Qatar Stock Exchange. Design/methodology/approach – To assess the working capital management and profitability relationship, the authors applied a multiple regression analysis methodology in all manufacturing companies listed on the Qatar Stock Exchange (ten firms) between 2015 and 2019. Average collection period, inventory turnover, average payment period and cash conversion cycle were adopted as proxies for working capital management, and profitability was measured by operating profit margin (OPM), return on assets (ROA), return on capital employed (ROCE) and return on equity (ROE). Findings – The study found that companies with shorter receivables collection periods and cash conversion cycles are more profitable. Longer inventory turnover periods and accounts payable payment periods are related to higher profitability of the firms. Originality/value – Previous studies have assessed the relationship between working capital management and profitability. However, this study is the first one to use these four variables combined (OPM, ROA, ROCE and ROE) to measure profitability; this is what was limited in previous studies. In comparison, the previous studies were not comprehensive in studying the impact of working capital management on profitability from all aspects of profitability's variables [operational (OPM), economic (ROA), capitalist (ROCE) and financial (ROE)]. However, this study focused on all these aspects to make the results of the study more accurate. Also, it is worth mentioning that this study is the first research performed on Qatar Stock Exchange, although Qatar has achieved remarkable progress in the industrial sector in recent years, making it one of the first industrialized countries in the Middle East.

Keywords

• Qatar stock exchange
• Manufacturing companies
• Working capital management
• Profitability