The Impact of Working Capital Management on the Profitability of Smart Bags Limited Manufacturing Firm in Zimbabwe

Abstract

Since the adoption of the multiple currencies, the Zimbabwean economy has been on a growth path, however liquidity challenges have been stifling further growth prompting most businesses to reposition themselves. With the liquidity situation worsening, it has become important for businesses to understand how working capital management, as a key business driver, is impacting performance of their businesses. This research project seeks to critically examine the impact of working capital management on the profitability of manufacturing firms in the multi currency environment in Zimbabwe using the case of Smart Bags (Pvt) Ltd. The paper makes an attempt to study the relationship between measures of working capital management efficiency and profitability. The study is based on secondary data collected from [1,2]. The study was conducted using descriptive statistics and correlation analysis specifically Pearson’s correlation coefficient to measure the pair-wise association between dependent and independent variables. The study outlined the significant and non significant of the relationship between the dependent variable (profitability) and the independent ones. It was found that there is a weak negative correlation between Average Collection Period and profitability as well as between the Cash Conversion Cycle and profitability.  It was also revealed that there is a weak positive relationship between Average Payment Period and profitability. According to the findings it was revealed that there is a strong positive relationship between Inventory Turnover Ratio and profitability as well as between a company’s liquidity and profitability. The study also revealed that there is a strong negative relationship between the debt ratio and profitability and also between a company’s aggressiveness of working capital financing policy and its profitability.