The Relationship between Working Capital Management and Profitability of Listed Companies on the Johannesburg Stock Exchange.

Abstract

Efficient working capital management is an integral component of the overall corporate strategy to create shareholders’ wealth. This paper seeks to extend findings regarding the relationship between working capital management and profitability. A sample of 69 companies listed on the Johannesburg Stock Exchange (JSE) for the period from 1998 to 2008 was selected. The results revealed a statistically significant negative relationship among profitability (as measured through gross operating profit), the cash conversion cycle (CCC), and number of days accounts receivable (AR). The results also revealed a positive and significant relationship among profitability, the number of days accounts payable (AP), and the number of days inventory (INV). The results suggested that managers could increase their company’s profitability by effectively managing the CCC and its components.