The effect of working capital management on financial performance in case of some selected manufacturing companies in dire dawa city

The main purpose of this study is to examine the effect of working capital management on firm’s financial performance of some selected manufacturing companies in Dire Dawa City Administration. To achieve the objectives of the reliable finding research, seven manufacturing firms should be selected as a sample study and employed secondary data of the firm’s balance sheet report for the period of five years from 2016 up to 2020. The study was used the return on assets (ROA) as a proxy of dependant variable and inventory conversion period (ICP), account receivable period (ARP), account payable period (APP), cash conversion cycle (CCC) as a proxies of independent variables and also current ratio (CR), financial leverage (DTAR), total assets utilization ratio (TAR), firm size (FS of assets Ln) as a proxies of control variables. The study adopts quantitative research approach of panel data analysis and the result should be analyzed through the use of descriptive statistics, correlation matrix, and regression analysis with the help of applying Stata 14 software to ascertain the relationship between the ROA as a dependant variable with explanatory variables of working capital components. The result of our sampled firm’s research analysis revealed that, there is a significance weak negative relationship of inventory conversion period (ICP), account receivable period (ARP), and cash conversion cycle (CCC) with the company’s financial performance measures of return on assets (ROA), and while, there is an insignificance weak negative association of account payable period (APP) with firms financial performance measures in terms of return on assets (ROA). The study recommended for establishing the relationship between the working capital management practices and the financial performance of firms included in this study in Dire Dawa city administration in order to accommodate the interested and influential stakeholder namely community, employee and customers as to sustain through the economy in industrial sector.