Determinants of Working Capital Management on Profit for Manufacturing Firms

Abstract

Management of Working Capital is often influenced by a number of factors. Often due to the large number of measurable factors that influence working capital, it is difficult to ascertain the most significant ones. This paper uses Principal Components Factor Analysis to examine the variables that have an impact on working capital management of Ghanaian manufacturing and industrial firms listed on the Ghana Stock Exchange. Fifteen (15) measurable characteristics that affect working capital management on profit from the Ghana Stock Exchange data is analyzed. It was determined that the Economic factors, short term liquidity, convertibility and operational factors are significant determinants of how a manufacturing company manages its working capital. Policy makers, investors or managers of the firms must focus attention on these areas of working capital that need improvement in order to yield profits.