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The Impact of Working Capital Management on Profitability of Petroleum Retail Firms: Empirical Evidence from Ghana

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  • Joseph Mbawuni
  • Mercy Mbawuni
  • Simon Nimako

Abstract

The study examined the impact of working capital management (WCM) on the profitability of petroleum retail firms (PRFs) in Ghana over a six year period (2008-2013). Audited annual reports from a sample of five selected petroleum retail firms in Ghana are employed in the study. Using, descriptive analysis, correlation and regression analysis, the results indicate that, in the PRFs in Ghana, there is favourable net working capital for the firms and a favourable networking capital to total assets ratio. The most important WCM component that drives the firm’s profitability, measured in return on assets (ROA), is average days payable (ADP). The rest of WCM components, cash conversion cycle (CCC), average days inventory (ADI) and average days receivables (ADR) did not have significant relationship with profitability. The study further found that WCM practices among the five selected PRFs support the conservative strategy of WCM, rather than an aggressive WCM strategy. Theoretical and managerial implications are discussed.

Suggested Citation

  • Joseph Mbawuni & Mercy Mbawuni & Simon Nimako, 2016. "The Impact of Working Capital Management on Profitability of Petroleum Retail Firms: Empirical Evidence from Ghana," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(6), pages 1-49, June.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:6:p:49
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    References listed on IDEAS

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    1. Francisco Sogorb-Mira, 2005. "How SME Uniqueness Affects Capital Structure: Evidence From A 1994–1998 Spanish Data Panel," Small Business Economics, Springer, vol. 25(5), pages 447-457, December.
    2. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 573-588, April.
    3. A.K. Sharma & Satish Kumar, 2011. "Effect of Working Capital Management on Firm Profitability," Global Business Review, International Management Institute, vol. 12(1), pages 159-173, February.
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    Cited by:

    1. Sathyamoorthi C.R. & Mogotsinyana Mapharing & Popo Selinkie, 2018. "Analytical Procedures Phase of PCAOB Audits: A Note of Caution in Selecting the Forecasting Model," Applied Finance and Accounting, Redfame publishing, vol. 4(1), pages 82-94, February.
    2. Anis Ali & Nadeem Fatima, 2023. "Growth and Financial Performance Governance by the Total Resources: A Case of Indian Downstream Oil and Gas Firms," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 141-148, May.
    3. Jacek Jaworski & Leszek Czerwonka, 2022. "Which Determinants Matter for Working Capital Management in Energy Industry? The Case of European Union Economy," Energies, MDPI, vol. 15(9), pages 1-18, April.

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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