Impact of Working Capital Management on Firm Profitability: The Case of Listed Manufacturing Firms on Ho Chi Minh Stock Exchange

Abstract

This study is aimed at investigating the relationship between working capital management and profitability. This study is based on a panel data of 98 manufacturing firms listed on Ho Chi Minh City Stock Exchange for a period 6 years (from 2009 to 2014). The results of Pearson’s correlation and fixed effects multiple regression analysis found significant negative relationships between cash conversion cycle, net trade cycle, average collection period, average inventory period, average payment period and return on assets. So managers can improve the firm’s profitability by reducing cash conversion cycle, net trade cycle and it’s components to an optimal level. Further, the control variables including liquidity, leverage, firm size and firm growth also have significant effects on firm profitability. In particular, the findings also imply that managers can use net trade cycle instead of cash conversion cycle confidentially.