The effect of working capital management on firm's profitability: ISE application between 2003 and 2012

Working capital refers to short-term investments of business. The amount of working capital has a significant part in total assets of business. Therefore, it directly effects the profitability of business. The purpose of this study is to reveal the effect of managing working capital on a firm's profitability. In order to to achieve this objective, this study uses panel data sets of 128 companies that trade on ISE and operate in the manufacturing sector, whose data belong to the 2003-2012 period annual financial statements. Sales profitability is taken as dependent variable in the study. Independent variables of the study are: Total debt / equity, short-term liabilities / total assets, current ratio, net working capital / total assets, inventory turnover, receivables turnover, net working capital turnover, asset turnover, short-term liabilities turnover, capital turnover, the return on assets ratio, and the return on equity. Panel data analysis method was used in order to demonstrate the relationship between dependent and independent variables. According to the results of research, a significant and positive relationship between sales profitability and return on assets was found. Likewise, a significant and positive relationship between sales profitability and current ratio was also found. Conversely, a significant and negative relationship between sales profitability and short-term liabilities turnover was found.