IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY IN THE LISTED FIRMS IN THE RETAIL SECTOR IN THE SAUDI STOCK EXCHANGE

Abstract

Working capital management is an important issue in financial management, considering its large role on the profitability and liquidity of firms. This paper aims to explore the effects of working capital management on profitability in 14 Saudi retail companies that are listed in the Saudi Stock Exchange (Tadawul) over the period of 2011-2014. This study will employ panel data regression analysis using Pooled OLS to test the relationship between working capital components, which are the cash conversion cycle (CCC), current assets to total assets (CATAR), current assets to current liabilities ratio (CACLR), current liabilities to total assets ratio (CLTAR) and debt to total assets ratio (DTAR) and profitability measured by return on assets (ROA) and return on invested capital (ROIC). The working capital management components represent the independent variables, while the profitability variables represent the dependent variables used in the model. The results show no significant relationship between working capital management components and ROA and ROIC in all the companies and the ones who predominantly deal with services, except for companies that deal with mainly goods, where there is a significant negative relationship between CACLR and ROA.