International Journal of Finance and Banking Research 2019; 5(2): 29-35 http://www.sciencepublishinggroup.com/j/ijfbr doi: 10.11648/j.ijfbr.20190502.13 ISSN: 2472-226X (Print); ISSN: 2472-2278 (Online) Effect of Working Capital Management on Profitability of Listed Manufacturing Companies in Ghana Jacob Akomeah * , Siaw Frimpong Department of Finance, University of Cape Coast, Cape Coast, Ghana Email address: * Corresponding author To cite this article: Jacob Akomeah, Siaw Frimpong. Effect of Working Capital Management on Profitability of Listed Manufacturing Companies in Ghana. International Journal of Finance and Banking Research. Vol. 5, No. 2, 2019, pp. 29-35. doi: 10.11648/j.ijfbr.20190502.13 Received: March 31, 2019; Accepted: May 15, 2019; Published: June 26, 2019 Abstract: Working capital management plays a vital role in the success of businesses because of its effect on profitability. The purpose of this study is to examine the effect of working capital management on the profitability of listed manufacturing firms in Ghana. The study used secondary data collected from seven (7) manufacturing firms listed on the Ghana Stock Exchange for a period of ten years (2005-2014). The profitability as dependent variable was measured in terms of gross operating profit. The working capital was determined by Accounts Receivables Period, Accounts Payables Period, Inventory Conversion Period and Cash Conversion Cycle are used as independent variables. Moreover, current ratio used as liquidity indicator and firm size as measured by logarithm of sales are used as control variables. Data was analysed using the Fixed- Effects model of the Panel data regression. The regression results revealed that account receivables period (ARP) and inventory conversion period (ICP) days had a statistically significant negative impact on the profitability whiles account payables period (APP) days had insignificant positive effects on the profitability. The study, on the other hand found out that cash conversion cycle (CCC), current ratio (CR), and firm size (LOS) had a significant positive impact on the profitability. The study recommended that manufacturing firms should adopt efficient and effective ways of managing these components of working capital management. Keywords: Working Capital Management, Profitability, Ghana Stock Exchange, Fixed Effect, Random Effect 1. Introduction Working capital management (WCM) is an important corporate financial decision since it directly affects the profitability of the firm. Working capital management efficiency is vital especially for manufacturing firms, where a major part of assets is composed of current assets especially inventory and trade receivables [1]. In their study [2] on working capital management noted that the objective of working capital management is to maintain an optimal balance between each of the working capital components. Working Capital Management (WCM) is an essential part of financial management and contributes significantly to a firm’s wealth creation as it directly influences organizational profitability and liquidity. Working capital is the capital available for conducting the day-to-day operations of the business and consists of current assets and current liabilities. When a business entity takes the decision regarding its current assets and current liabilities it can be termed as Working Capital Management [3]. Therefore, working capital management is the administration of current assets and current liabilities. The primary components of working capital management include inventory levels, trade credit (accounts receivables), accounts payables, as well as cash conversion cycle. Cash Conversion Cycle is a popular measure of working capital management that reflects the net time interval between actual cash expenditure on a firm’s purchase of productive resources and the ultimate recovery of cash receipts from product sales [4]. This study is motivated by the recent global financial crises which significantly affect the liquidity position and the overall business activities across the world. In Ghana, where credit is either not available or expensive to obtain, there are corporate issues across almost all the manufacturing firms