THE IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY OF MANUFACTURING FIRMS IN BOSNIA AND HERZEGOVINA
THE IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY OF MANUFACTURING FIRMS IN BOSNIA AND HERZEGOVINA

Summary/Abstract: The main objective of this paper is to provide empirical evidence about effects of working capital management on profitability of manufacturing firms in Bosnia and Herzegovina. Another important aim of the study is to demonstrate possible variation relating to same subject between firms that are listed on two B&H stock exchanges. For this purpose, the study on sample of 131 listed manufacturing firms from 10 industrial groups in period 2005 to 2009 was undertaken. By using Pearson’s correlation test and regression analysis, the study reveals that the cash conversion cycle (CCC) and financial leverage (LEV) have a significant and negative impact on firms’ profitability, while firm’s size (in sales) significant and positive. However, at the stock exchanges level, the inventory conversion period (ICP) is found to be more important than CCC in affecting profitability. The size of firm and financial leverage are also found to have some influence over profitability, as well in the whole sample. The study also confirming the positive relationship between liquidity risk and profitability in terms of relative highness of current liabilities. Finally, the study concludes that there is need for thoroughly reviewing the payment and collection policies in B&H manufacturing firms.

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