Working Capital Management as a Financial Performance Indicator of Profitability and Liquidity

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Working Capital Management as a Financial Performance Indicator of Profitability and Liquidity

Abstract

The study examined the influence of the working capital of Ayrton Drugs Ltd and Starwins Product Ltd on its profitability. The study further assessed the influence of collection period, inventory period, payable period and the cash conversion cycle on ROA (Return on Assets). The study used financial information obtained from Annual Report Ghana. The financial data was used to construct a balanced panel of two pharmaceutical companies from 2004 to 2013. A multiple linear regression model was estimated with Prais-Winsten AR regression model to provide robust estimates and control for the presence of heteroskedascity and auto correlation in the residual term. Findings for the multiple linear regression model indicate that working capital variables were insignificant in influencing profitability; showing that a unit change in cash conversion cycle of the pharmaceutical companies had no influential change in magnitude, on profitability.

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