The relationship between working capital management and profitability

Abstract

This paper studies the relationship between working capital management and profitability in Chinese listed companies for a period of 7 years from 2010 to 2016. We used a sample of 736 companies listed in the CSMAR- CSRC Industry Classification 2012 Edition. Working capital as a crucial component of corporate financial management affects the profitability of the firms. The goal of this research is to establish a relationship that is significant between the cash conversion cycle and profitability for Chinese listed companies. The outcomes of our study showed that there is a meaningful negative relationship between working capital management, which measured by cash conversion cycle, and profitability, which examined by gross operating profit. Simultaneously, managers can improve company performance in making profits by reducing the cash conversion cycle to a possible minimum level with a consideration of control factors, including company size, fixed financial assets ratio, financial debt ratio, and current ratio.