The Impact of Working Capital Management on Profitability of Selected Petroleum Retail Firms in Kumasi Metropolis, Ghana.

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August 2015
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Working Capital is an essential component of every business entity and as such has been described as the lifeblood of a business. Businesses therefore seek to maintain a balance between liquidity and profitability while conducting their day to day operations. The study therefore examined the impact of working capital management (WCM) on the profitability of petroleum retail firms (PRFs) in the Kumasi Metropolis over a six year period (2008-2013). Audited annual reports from a sample of five selected petroleum retail firms in the Kumasi Metropolis are employed in the study. Descriptive analysis as well as correlation and regression analysis are used in the analysis of the data. The results indicate that, in the selected PRFs in Kumasi Metropolis, 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. It is further observed that WCM practices among the five selected PRFs support the conservative strategy of WCM, rather than an aggressive WCM strategy. It is recommended that critical attention be paid to the management of average days of payables (ADP) together with quick ratio (QR) and firm Leverage (LEV) to boost profitability. It also recommends that Industry regulators should improve upon measures to facilitate speedy contractual agreements between the PRFs and the OMCs, to avoid unproductive delays in business transactions resulting from cumbersome documentations processes and demand for collateral security from the PRFs.
A Thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the degree of Master of Business Administration (Finance Option)