Effectiveness of working capital management and its effect on profitability: Evidence from BIST SME index

There are many studies in the literature on working capital management, which has a significant impact on the financial decisions taken in companies. In these studies, liquidity, operating and profitability ratios of companies were generally used when measuring the effectiveness of working capital. The aim of this study is to measure the effectiveness of companies in working capital management through indices and to reveal the effects of the obtained index values on the return on asset and return on equity of companies. For this purpose, unlike other indicators, the index method developed by Bhattacharya (1997) was applied on the companies listed in the BIST SME Industry Index between 2013 and 2022. In addition, the relationship between the calculated index values and the profitability of the companies was examined with panel data regression analysis. According to the findings, it was concluded that a significant portion of the companies included in the analysis managed their working capital effectively. In addition, it was observed that the effectiveness of working capital management had a significant effect on the return on asset of the companies, but did not have a significant effect on the return on equity.