Author(s): Ndonwabile Zimasa Mabandla, Patricia Lindelwa Makoni
This study aimed to investigate the nexus between working capital management and the financial performance of firms. We used a sample of 12 listed food and beverage companies in South Africa during the period 2007 to 2016. This study collected secondary data from the iress McGregor databases for the Johannesburg Stock Exchange (JSE) listed companies. Using various econometric techniques, we found a positive relationship between the inventory conversion period (ICP) and profitability of firms. In addition, the study found a negative relationship between the average collection period (ACP) and profitability. Furthermore, the study found a positive relationship between the average payment period (APP) and profitability. The findings of this article suggest that financial managers of firms need to adopt aggressive working capital management policies in order to create shareholder wealth through enhancing the financial performance of the firm.