Efficiency of working capital management andcorporate profitability : a case of Jordanian industrial companies

الملخص EN

This paper aim to investigate the relation between working capital management and corporate profitability for a sample of 59 Jordanian industrial firms listed on Amman Stock Exchange for a period of 4 years from 2004-2007.

The researcher studied the effect of different variables of working capital management including the Average collection period, Inventory turnover in days, Average payment period, Cash conversion cycle and Net trade cycle, on the Net operating profitability and Gross Profit as measures of profitability of Jordanian Industrial firms.

Debt ratio, size of the firm (measured in terms of sales) and Current ratio and Sales Growth ratio have been used as control independent variables.

Multiple regression test is used for analysis ; the results show that there is a strong significant relationship at ά.

= 1 %, between overall independent variables of the working capital management and profitability of the firms in all years and in every year in two models of study.

Simple regression used and the results indicate there is a significant relationship between Average collection period and profitability at negative significant relationship at ά.

= 5 %, and negative significant relationship at debt ratio at ά.

= 1 %, used by firms and net operating profit (profitability), but positive a significant relationship with cash conversion cycle and profitability at significant relationship at ά.

= 1.

We also find that there is a positive relationship between size of the firm and its profitability, at significant relationship at ά.

= 1 %, also the analysis indicates the same result for model two measured the profitability as gross profit except the cash conversion cycle not significant value.

The researcher recommended emphasizing the role of board monitoring of management and managements compensation in its control of the firms working capital.

There is much to be done about working capital in Jordanian in future with different companies and extending the years of the sample.

The scope of further research may be extended to the working capital components management including cash, marketable securities.