A Study on the Effect of Working Capital Management on the Profitability of Listed Companies in Tehran Stock Exchange

Abstract

In the current challenging economic and environment increasing pressure and limited external resources, current assets and liabilities, that is to say, working capital of the economic enterprises is of great importance. Working capital optimal management of the economic enterprises can be considered as a competitive advantage for them. The main goal of this paper is to investigate the relationship between working capital management and profitability of listed companies in Tehran Stock Exchange. Research data was analyzed using population of 116 listed companies in Tehran Stock Exchange for the period of 2006-2011 by applying combination method of all data (pooled data) and ordinary least squares regression (OLS). The research results indicate that, there is a significant inverse relationship between cash conversion cycle and its components, including the collection period, inventory turnover period and accounts payable turnover period, and profitability of the firms. Corporate managers can increase the profitability of their company desirably by reducing the collection period and inventory turnover period.