Effects of working capital management on the profitability of MOGAS Uganda

Abstract

The study sought to find out the effects of working capital management on profitability. The study defined working capital as the managing of current resources as well as current liabilities (Creswell, 2003). That the management of working capital is a very crucial element in firm performance, (Paul & Boden, 2008). The purpose of this study was to evaluate the effect of working capital management on the profitability of MOGAS Uganda Limited, a player in the downstream oil and gas industry in Uganda. The study was guided by the following objectives; to determine the different components of working capital, to determine the relationship of the different components of working capital on the profitability of MOGAS Uganda Limited and to determine the relationship between working capital management and the profitability of MOGAS Uganda Limited. From the study, it was revealed that accounts receivable days, accounts payable days and the current ratio have a significant effect on the profitability of MOGAS Uganda. The findings revealed that firm’s profitability increases with reduction in accounts receivable days. The study also noted that the profitability of the firm increases with increase in accounts payable days. However, the study found that inventory days do not have any effect on the profitability of a firm measured using return on assets. It was recommended that as proposed by the scholars and agreed to by the researcher, the firm needs a separate policy on all the components of working capital like cash policies, inventory policies, credit policies, payable policies etc. That these policies should be drafted, reviewed by all stakeholders and immediately implemented. And that further research could be made on Profitability from other companies because many other factors affect profitability which may not have been fully exploited in this study.