The effect of working capital management on firm

Abstract

This study investigates the effect of working capital management trends on corporate profitability and performance indicators of manufacturing firms listed on the New York Stock Exchange (NYSE). Data from 36 US-based general industrial firms was gathered from audited financial statements for the twelve years between 2010 and 2022. The study used regression analyses to assess the influence of working capital management components, as well as control variables such as Variability, Financial debt ratio, Sales growth, and Firm size.The study found that when working capital is reduced, the cash conversion cycle, a measure of short-term fiscal management, increases profitability. Accounts payable and Accounts receivable periods were found to be significantly correlated with profitability. Additionally, there is a negative association between profitability and inventory management in days, suggesting that organizations with more effective inventory management strategies are more likely to enjoy higher levels of profitability facilities.The study also found a negative correlation between financial debt ratio and profitability, suggesting that a larger share of the company's assets funded through debt, such as loans or bonds, may result in higher interest payments and financial commitments, which can influence the firm's net income and profitability. The study concluded that the firm's financial profitability is affected by its working capital management practices. It was advised that manufacturing firms listed on the NYSE use prudent, ideal working capital management methods, as these affect both their financial performance and overall company profitability.To inform policy change, the study evaluates the viability of recent local and international approaches while offering one of the most recent findings on the subject. The goal is to confirm that the connections discovered throughout the study are due to the cash conversion cycle on firm profitability, rather than the other way around.