International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Working Capital Management and Profitability: A Case of Industrial Jordanian Companies
Dr. Mohammad Fawzi Shubita

This study investigates the relationship between working capital management and profitability and introduces empirical evidence aboutworking capital management and its effect to the profitability of Industrial Jordanian companies listed in Amman Stock Exchange. The effect of different variables of working capital management have been studied including the Average collection period, Inventory turnover in days, Average payment period and Net Trade Cycle on the return of assets for Jordanian companies. The problem statement to be analyzed in this study is:Does working capital management affect profitability of Jordanian companies? Many parties will benefit from this research like creditors and investorsin making theirs investment decisions and the researchers in explaining market variables and the managers in focusing on liquidity. The study sample consists of 39 companies for the 8 years period from 2004-2011. Applying correlations and multiple regression analysis, the result shows that there are significant negative associations between working capital variables with firm's profitability so it highlights the importance of managing working capital to improve firm's profitability.Yet recommendations basedon findings are offered to improve certain factors like the Industrial Jordanian Companies must set a trade-off between profitability and liquidity so that neither the liquidity nor profitability suffers, managing working capital in more efficient ways,enhancing the audit report by adding a liquidity position paragraph, and develop models that increase the detecting liquidity problem ability.

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