The effect of working capital management on profitability: Evidence from southeast Europe

Abstract

The research is designed to examine the effect of working capital management on company's profitability in the food industry in Southeast Europe, during the five years period (2010-2014). The sample included 9883 active companies. The influence of certain variables of working capital management (current liquidity, the ratio of current to total assets of companies, the ratio of current liabilities to total assets of companies, financial leverage and size of the company) was measured on the probability of higher profitability by applying probit regression analysis. The results of probit regression provide support to a hypothesis that most of the analyzed variables of working capital management have statistically significant impact on the probability of higher profitability. In this paper is also researched how the optimal level of working capital management can contribute to the growth of profitability and value of the company as a whole.