The Impact of Working Capital Management on the Profitability of Construction Equipment Firms: Evidence from Listed Construction Equipment Firms in Abu Dhabi Stock Exchange

Abstract

The study objects for investigating whether the management of WC affects the profitability of listed construction equipment firms in Abu Dhabi Securities Exchange. It takes into consideration the management of inventory, receivables, and payables. Data of all listed construction equipment firms in Abu Dhabi Securities Exchange over the period 2006-2013, had been used in the analysis. Rate of return on total assets had used as an efficient measure of profitability. Inventory management had been measured through number of days inventory outstanding, and receivables management had been measured through the collection period in days. Moreover, number of days payables are outstanding is used to measure payables management. Simple linear regression is the statistical method used in analyzing the individual impact of the three elements of WC, while multiple linear regression method is used to measure the overall impact of these three elements on profitability. The study finds a significant effect of WC capital Management on profitability of these firms. Moreover, the study finds that inventory management has a significant effect on profitability, whereas it finds neither individual significant effect of receivables management, nor payables management on profitability.