Abstract:
Working capital management involves the management of the most short-term assets and liabilities of the
firm which includes cash and cash equivalents, Inventories and trade and other receivables. Most firms
do not hold the required amount of working capital and this has been a major obstacle to their overall
profitability. The study used a quantitative research design of the six (6) selected private limited large
scale manufacturing firms operating in the Hawassa city. For this purpose, balanced panel data obtained
from document analysis of annual financial reports of years ending June 30: 2011-2015. Multiple
regression and correlation analyses were carried out on the data to determine the relationships between
components of working capital management and the gross operating profit of the firms. The study
established that gross operating profit was positively correlated with Average Collection Period and
Average Payment Period but negatively correlated with Cash Conversion Cycle. The relationship
between Inventory Turnover in Days and gross operating profit was insignificant. Based on the key
findings from this study it has been concluded that the management of firms are capable of gaining
sustainable competitive advantage by means of effective and efficient utilization of the resources of the
organization through a careful reduction of the cash conversion cycle to its minimum and can create
value for their shareholders by investing account payables in short-term financings. In so doing, the
profitability of the firms is expected to increase.
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