Impact Of Working Capital Management On Profitability Of Selected Tannery Factories In Ethiopia

Abstract

The main objective of the study was to assess the impact of Working capital management on profitability of the selected tannery factories. The data was collected from financial statements reported for tax purpose to Federal and Regional Revenue Authority for the period 2006-2013. From the total of 29 tannery factories in Ethiopia, the study used data of only eight tannery factories by using a purposive sampling technique because the selected tannery factories had financial statement of the before 2006 and due to the accordance of their establishment before 2006 and the accessibility of tannery factories to the researcher. The study used explanatory research design in order to explain the relationships between variables and also to examine the impact of working capital management on profitability of selected tannery factories by evaluating the relationship among different variables. The independent variables applied in the study were average collection period, inventory conversion period and average payment period. The control variables were debt ratio, current ratio and firm size; on the other hand the dependant variable was profitability of the selected tannery factories measured by return on asset. The study used descriptive statistics, and balanced fixed effect panel regression to analyze the data. The findings of the study showed that average payment period and firms’ size have significant positive relationship with profitability. Keywords: Working capital management, Profitability, selected tannery factories.