Components of working capital and profitability in Saudi Arabian companies
Open Access
- 5 August 2021
- journal article
- Published by LLC CPC Business Perspectives in Investment Management and Financial Innovations
- Vol. 18 (3), 52-62
- https://doi.org/10.21511/imfi.18(3).2021.05
Abstract
The study examines the influence of the cash conversion cycle (one of the components of working capital) on the firm profitability measured in terms of return on equity (ROE), return on assets (ROA), Tobin’s q, and gross operating profit (GROP) in the manufacturing sector of Saudi Arabia. The study selects a sample of 100 companies from nine industrial sectors listed on the Tadawul Stock Exchange starting from 2008 to 2019. A pooled regression is estimated to report the empirical results. The results report a positive and significant association between the components of working capital in terms of cash conversion cycle and the firm profitability in terms of ROA, ROE, and Tobin’s q, except for the GROP, where there is a negative and significant relationship. The study reports that the growth in firm performance is associated with supplier’s financing terms and inventory ordering cost. The results also show that larger firms are more profitable than smaller firms. Hence, the current study confirms the formulated hypothesis of having a significant association between the components of working capital and firm profitability.Keywords
This publication has 22 references indexed in Scilit:
- The Relationship between Working Capital Management and Profitability: Evidence from TurkeyBusiness and Economics Research Journal, 2016
- EMPIRICAL EXAMINATION OF THE ASSOCIATION OF WORKING CAPITAL MANAGEMENT AND FIRMS’ PROFITABILITY OF THE LISTED FOOD AND BEVERAGES FIRMS IN NIGERIAResearchers World – Journal of Arts Science & Commerce, 2016
- The Relationship between Working Capital Management and Profitability : evidence from Korean Shipping IndustryJournal of Navigation and Port Research, 2015
- The impact of cash conversion cycle on firm profitabilityInternational Journal of Managerial Finance, 2014
- How does working capital management affect the profitability of Spanish SMEs?Small Business Economics, 2011
- Effect of Working Capital Management on Firm ProfitabilityGlobal Business Review, 2010
- Costly external finance, corporate investment, and the subprime mortgage credit crisisJournal of Financial Economics, 2010
- The Effect of Working Capital Management on Firm Profitability: Evidence from TurkeyThe International Journal of Applied Economics and Finance, 2008
- Does Working Capital Management Affect Profitability of Belgian Firms?Journal of Business Finance & Accounting, 2003
- A Cash Conversion Cycle Approach to Liquidity AnalysisFinancial Management, 1980