The Relationship between Working Capital Management and Profitability

Working capital management is an important concept that could influence companies in many ways. An efficient management of working capital can help a company to manage its finances and increases its profitability. This study investigates the relationship between working capital management and profitability in non-financial companies listed in the Saudi Stock Exchange. A sample of 67 companies is used for a period of ten years (2007-2016). Quantitative method using multiple linear regression and pooled data set is used for analysis. The results indicate a positive relationship between working capital management and profitability. However, each company could have a different optimal level of working capital and could require different strategies to increase profitability. This study is limited to non-financial companies listed in the Saudi Stock Exchange. This study is a positive contribution to working capital management literature as it uses a relatively large sample, a longer time period, and multiple profitability proxies in the context of Saudi Arabia which has few researches in this area.