Original Research

Working capital management of South African retail firms

Elmarie Louw, John Hall, Leon Brümmer
Journal of Economic and Financial Sciences | Vol 9, No 2 | a58 | DOI: https://doi.org/10.4102/jef.v9i2.58 | © 2017 Elmarie Louw, John Hall, Leon Brümmer | This work is licensed under CC Attribution 4.0
Submitted: 18 December 2017 | Published: 11 August 2016

About the author(s)

Elmarie Louw, Department of Financial Management, University of Pretoria, South Africa
John Hall, Department of Financial Management, University of Pretoria
Leon Brümmer, Department of Financial Management, University of Pretoria, South Africa

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Abstract

The way a firm manages its working capital can have a decisive influence on the firm’s profitability and liquidity. In view of the prominent role that the retail industry plays in the South African economy, the purpose of this study was to investigate the effect of working capital management on the profitability of South African retail firms. Eighteen retail firms that were listed on the Johannesburg Securities Exchange for a period of nine years (2004-2012) were analysed. The findings show that a strategy of reducing investment in inventory and trade receivables, while increasing trade payables, appears to improve the profitability of South African retail firms. Inventory management seems to have the strongest statistically significant impact on a firm’s profitability. Hence, it is recommended that retail firms implement advanced inventory management systems in order to optimise inventory levels and enhance profitability.

Keywords

Cash conversion cycle; Liquidity; Profitability; Retail Firms; Working capital management

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