Effect of working capital management on the financial performance of pharmaceutical companies in Ghana

Abstract

Working capital management plays a vital role in improving the financial performance of companies. The purpose of the study is to analyze the effects of working capital management on the financial performance of pharmaceutical companies in Ghana. For this reason Pearson correlation and regression were used to analyze the secondary data in the form of annual financial report were obtained from the pharmaceutical companies for a period of eleven years (2005-2015). The study measured financial performance using Return on equity and Return on assets. The study used Rate of stock turnover, Average collection period, Current ratio, Firm size and Average payment period as the independent variable. The study found negative relationship with average collection period, firm size and rate of stock turnover and found a positive relation with current ratio and average payment period. However, firm size, average collection period were statistically significant. The results indicate that there was 22.5% and 9.8% of the variation in Return on assets (ROA) and Return on equity (ROE) as the dependent variable explained by the independent variables of Rate of stock turnover (ROST), Average collection period(ACP), Current ratio (CR), Firm size (FS) and Average payment period(APP). Based on the results from the study it concludes shareholders can create value for their wealth by reducing average collection period and delay payment for creditors. Managers of pharmaceutical companies must employ staffs with qualified expertise and experience to manage their working capital to improve their liquidity level and operations. ©University of Cape Coast