A Dissertation Submitted in Partial Fulfillment of the Requirements for Award
of the Degree of Master of Science in Accounting and Finance (MSc-Accounting
and Finance) of Mzumbe University
Working capital management is needed for day to day operations of a business firm.
Working capital management involves administration of the most liquidity resources
of the business firms which include cash and cash equivalents, inventories and trade
and other receivables. Adequate management of working capital will resulted in
achievement of maximum gross operating profit thus maintaining liquidity position
and maximizing shareholders wealth which is the central tendency of goal of any
firm. Unlikely, insufficient working capital administration will result into illiquidity
due to the fact that respective company won‟t able to generate enough GOP to
enhance liquidity position. Business firms required to hold appropriate working
capital so as to trade-off between liquidity and bankruptcy.
Companies can use working capital management as an approach or tool to influence
GOP. This paper investigated the impact of working capital management on
profitability of cement companies registered in Tanzania. The study based on two
companies only due to the fact that at the time of conducting research there were
only two listed companies. The study covers a period of 8 years from year 2006 to
2013. Descriptive statistics, correlation and multiple regressions analyses are
employed to explore the relationship between working capital components and GOP.
The correlation analysis for TCCCL established that GOP is negatively related with
APP against expected and ITID as expected. While correlation and multiple
regression analyses found that GOP is negatively related with ACP as expected and
positive related with CCC against expected. Regression for TPCCL established that
GOP was negatively related with ACP as expected and positively related with ITID
against expected. Also GOP positively related with APP (as expected) while
negatively related with CCC (as expected). This commented that profitability of
Cement Company depends on effective working capital management in order to
trade off between liquidity and bankruptcy.
The study is therefore recommended that for those working capital components bring
unpredicted results, efficient in supervision is needed to improve. Similarly for those
insignificant relationships care is required to advance from respective areas.