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The effect of working capital management on profitability: The case of Small Medium and Micro Enterprises in South Africa

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  • Samuel Tabot ENOW

    (University of WesternCape, School of Business and Finance, South Africa)

  • Pradeep BRIJLAL

    (University of WesternCape, School of Business and Finance, South Africa)

Abstract

Working capital is vital in any business, especially in SMMEs, given that most of their assets are in the form of current assets. Management of working capital is vital in order to improve profitability of the business. This study investigated the effect working capital management on profitability, using fifteen South African SMMEs, listed on the Alt-X on the JSE, from 2008-2012, using a multiple regression analysis. The results show a positive relationship between number of days account receivable, number of day’s inventory and negative relationship between number of days payable and cash convention cycle. Thus minimizing working capital and decreasing the cash conversion cycle increases profitability and hence shareholder value.

Suggested Citation

  • Samuel Tabot ENOW & Pradeep BRIJLAL, 2014. "The effect of working capital management on profitability: The case of Small Medium and Micro Enterprises in South Africa," The Journal of Accounting and Management, Danubius University of Galati, issue 2, pages 7-15, August.
    • Handle: RePEc:dug:jaccma:y:2014:i:2:p:7-15
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    File URL: http://journals.univ-danubius.ro/index.php/jam/article/view/2316/2310
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    References listed on IDEAS

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    Cited by:

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    2. David Rodeiro‐Pazos & Sara Fernández‐López & Raúl Rios‐Rodríguez & Adrián Dios‐Vicente, 2023. "Working capital management and firm sales growth: Evidence from fish processing industry," Agribusiness, John Wiley & Sons, Ltd., vol. 39(4), pages 1254-1278, October.
    3. Ardi Ahmeti & Alban Elshani, 2024. "The Effect of Profitability as a Mediator in the Relationship between Working Capital Management and the Sustainable Growth of Small and Medium-Sized Enterprises in Selected Western Balkan Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 47-61.
    4. Sara Fernández‐López & David Rodeiro‐Pazos & Lucía Rey‐Ares, 2020. "Effects of working capital management on firms' profitability: evidence from cheese‐producing companies," Agribusiness, John Wiley & Sons, Ltd., vol. 36(4), pages 770-791, October.
    5. Raza Ali & Tursoy Turgut & Shaikh Erum & Shaikh Ahsan-ul-Haque, 2024. "Investigating the Symmetric Effects of Working Capital on Profitability in Turkish Banking: An ARDL Empirical Analysis," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 34(1), pages 74-97, March.

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