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The Relationship Between Working Capital Management And Profitability: Evidence From The United States

Keywords: Working Capital , Corporate Profitability , Firm Size

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Abstract:

The paper seeks to extend Lazaridis and Tryfonidis’s findings regarding the relationship between working capital management and profitability. A sample of 88 American firms listed on New York Stock Exchange for a period of 3 years from 2005 to 2007 was selected. We found statistically significant relationship between the cash conversion cycle and profitability, measured through gross operating profit. It follows that managers can create profits for their companies by handling correctly the cash conversion cycle and by keeping accounts receivables at an optimal level. The study contributes to the literature on the relationship between the working capital management and the firm’s profitability.

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