Working Capital Management and SME Profitability: Empirical Evidence from Bangladesh

Global Journal of Management and Business, 5(2): 094-099, 2018

6 Pages Posted: 2 Jan 2019

See all articles by G. M. Wali Ullah

G. M. Wali Ullah

Independent University, Bangladesh (IUB)

Anwar Zahid

Independent University, Bangladesh (IUB); Bangladesh Water Development Board

Isma Khan

Independent University, Bangladesh (IUB)

M. Nazmul Islam

University of Asia Pacific; BRAC University

Date Written: November 10, 2018

Abstract

Working capital management (WCM) is widely found to have a great impact on firm’s profitability. Due to the lack of access in long term capital market, small medium enterprise (SMEs) gives more emphasis on effective use of WCM to ensure profitability. Especially in Bangladesh, SMEs are also highly dependent on WCM. In this regard, this paper aims to examine the relationship between working capital management and profitability of SMEs from Bangladesh. Data for relevant variables were found for 10 SMEs in the textile industry for the period of 2012-2017. Through a detailed literature review, several important variables related to working capital management i.e. Accounts Receivables (AR), Accounts Payables (AP), Inventory (INV), Cash Conversion Cycle (CCC) and others were identified and tested against profitability measures i.e. Return on Asset (ROA) and Gross Operating Profit (GOP). Econometric analysis found significant relationship between INV and ROA but no significant relationship with GOP. Size of the firm as proxy by sales recorded, Asset Turnover and Financial Debt were found to be significant with both GOP and ROA. Current ratio (CR) had a significant relationship with GOP but not the ROA. These findings have strong implications on proper WCM for the Bangladeshi SMEs to sustain their profitability over the course of their business operations.

Keywords: Working Capital Management, Profitability, SME, Bangladesh

Suggested Citation

Ullah, G. M. Wali and Zahid, Anwar and Khan, Isma and Islam, M. Nazmul, Working Capital Management and SME Profitability: Empirical Evidence from Bangladesh (November 10, 2018). Global Journal of Management and Business, 5(2): 094-099, 2018, Available at SSRN: https://ssrn.com/abstract=3299586

G. M. Wali Ullah

Independent University, Bangladesh (IUB) ( email )

Plot - 16, Block - B, Aftabuddin Ahmed Road
Bashundhara R/A
Dhaka, 1212
Bangladesh
+8801793-514567 (Phone)

Anwar Zahid

Independent University, Bangladesh (IUB)

Plot 16 Block B, Aftabuddin Ahmed Road Bashundhara
Bashundhara R/A
Dhaka, 1229
Bangladesh

Bangladesh Water Development Board ( email )

Bangladesh

Isma Khan

Independent University, Bangladesh (IUB)

Plot 16 Block B, Aftabuddin Ahmed Road Bashundhara
Bashundhara R/A
Dhaka, 1229
Bangladesh

M. Nazmul Islam (Contact Author)

University of Asia Pacific ( email )

Green Road.
Dhaka, 1205
Bangladesh

BRAC University ( email )

66 Mohakhali C/A
Dhaka 1212 Bangladesh
Dhaka, 1212
Bangladesh

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
413
Abstract Views
1,205
Rank
135,728
PlumX Metrics