Studying the Relationship between Woriag Capital Management and Pofitability at Tehran StoclEchange: A Case Study of Food Industry

摘要

This study has investigated the relationship between working capital management and profitability at companies of food industry group member at Tehran Stock Exchange. 33 companies were selected for a period of five years from 2006-2011 and the effect of various variables of working capital management including average accounts collection cycle, inventory turnover, medium-term debt payment and the cash conversion cycle on operational net profit of companies. Current ratio, debt ratio and the company size (which has been measured by natural logarithm of sale) was considered as control group (control variable). For data analysis, correlation and regression was used. The results of the study showed that there is a reverse relationship between the variables of working capital management and profitability. It is found out that increasing collection cycle, debt payment period, inventory turnover and cash conversion cycle leads to decreasing profitability in the companies. According to the research findings, managers can create a positive value for stockholders by decreasing collection cycle, debt payment period, inventory turnover and cash conversion cycle to the lowest possible level.