The impact of working capital management practice on firm profitability: An evidence from manufacturing firms listed in Istanbul Stock Exchange

Due to their deep involvement with various financial decisions, working capital components are very essential for manufacturing firms. Therefore, the principal aim of this study was definitely to inspect the influence of working capital management practice on the firm profitability of the Turkish chemical, petrol and plastic manufacturing firms listed on Istanbul Stock Exchange for a period of five years from 2012 to 2016. Accounts receivable period (ARP), inventory conversion period (ICP), accounts payable period (APP), and cash conversion cycle (CCC) are working capital components that employed as independent variables. Both return on assets (ROA) and return on equity (ROE) are firm profitability variables that hired as dependent variables and in addition to this, current ratio (CR), debt ratio (DR), and sales growth (SG) are exploited as control variables. The researcher is designed certainly to employ descriptive statistics, correlation and linear regression analysis as a statistical testing tool to uncover the association between independent and dependent variables and then reach the possible goals of the study. Finally, the Pearson correlation result exposed that firm profitability has a positive and negative correlation with ARP and ICP variables respectively, additionally, ROA has a negative and positive correlation with APP and CCC variables respectively while ROE has a positive and negative correlation with APP and CCC variables respectively. However, the linear regression result witnessed that firm profitability has a positive relationship with ARP and APP variables and a negative relationship with ICP and CCC variables. In the end, the researcher recommends to shorten CCC and APP variables and also build strong communication among purchasing, production, and marketing departments to overcome shortage or excess of inventory.