Impact of Working Capital Management on Profitability of the Cement Industry in Bangladesh

Abstract

In corporate finance, short-term asset and liability management has a crucial role in measuring the firm performance. This study looked into the effects of working capital management (WCM) on the profitability of the Cement companies listed on the Dhaka Stock Exchange. The study considers all seven firms from the cement industry in Bangladesh. In this paper we have applied the panel regression model to study the impact of working capital management on profitability of the firms. Two profitability variables are used: ROA (Return on equity) and ROE (Return on assets). Receivable period, inventory period, payables period, current ratio, and quick ratio are used as working capital components in the study. Pane regression model has been estimated by both fixed effect and random effects model for two profitability variables. Results indicate that only quick ratio has been found statistically significant in case of both return on assets and return on equity models. No other working capital management variable has been identified having statistically significant coefficient. The study concludes that all working capital components except quick ratio do not have any influence in measuring the profitability of the Cement companies in Bangladesh. Results have implications for the short-term management of the firms to improve their efficiency and contribute to the value creation.