Investigation and comparison of the effect of working capital management on firm profitability between companies within different sectors of the JSE

Abstract

This study investigated the effect that working capital management has on company profitability within a South Africa context and determined whether the relationship that was found differed depending on the sector to which the entity belonged. In achieving this objective, companies listed on the JSE were investigated over a five year period extending from 2012- 2016. The results of multiple regression analysis revealed that when the relationship between working capital management and profitability was considered for the Johannesburg Stock Exchange (JSE) as a whole, no significant relationship was observed. However, the analysis of the results by sector revealed that the basic materials, industrials and technology sectors had a significant negative relationship between accounts receivable days and profitability. The basic materials sector revealed a significant positive relationship between accounts payable days and profitability and the technology sector revealed a significant positive relationship between inventory days and profitability. It can thus be seen that the relationship that may exist when considering the JSE as a whole may not be true for companies within a specific sector