Working Capital Management and Corporate Profitability: Evidence from Iran

Abstract

Abstract: The main objective of this research is studying the relationship between working capital management and profitability. Cash conversion cycle is one of the important measuring tools to calculate the efficiency of working capital management. The time realm of the research was 2001-2006 and the studied companies have been the ones accepted in Tehran stock exchange. In general, out of 2628 companies; the company has been selected as a top company for 1063. Then multiple regression and Pearson’s correlation was used to test the hypothesis. The results of the statistical test of the hypothesis indicate that there is a negative significant relation between number of days accounts receivable and profitability, a negative significant relation between Inventory turnover in days and profitability, a direct significant relation between number of day’s accounts payables and profitability and there is a negative significant relation between cash conversion cycle and profitability. The results of the research show that in the studied companies, there is a significant relation between working capital management and profitability and working capital management has a great effect on the profitability of the companies and the managers can create value for shareholders by means of decreasing receivable accounts and inventory.