Effects of Working Capital Management on Profitability A Case of Ethiopian Sugar Companies

The purpose of this study is to examine the effects of working capital management on profitability of sugar manufacturing companies in Ethiopia. The study used secondary data collected from 3 sugar manufacturing companies covering the period from 2002–2013. The study used explanatory research design. The dependent variables used in the study were Return on asset (ROA) and while the independent variables were Cash conversion period (CCP), Account receivable period (ARP), Account payable period (APP), Inventory collection period (ICP), and the control variables are Current ratio (CR), Quick ratio(QR), Debit ratio (DR), Firm size(FS) and Firm growth rate (FGR). The data was analyzed using SPSS (version 20.0) and STATA (version 12), estimation equation by both correlation analysis and pooled panel data regression models of cross-sectional and time series data were used for analysis. Using panel data methodology, the study finds that account payable period and firm size have a significantly negative relationship with profitability while account receivable period and firm growth rate have a significant positive relation with profitability. Generally working capital management has significant effect on the profitability of sugar manufacturing companies in Ethiopia.