Volume : 12, Issue : 1, JAN 2026

DETERMINANTS OF FIRM PROFITABILITY: AN ECONOMETRIC ANALYSIS OF WORKING CAPITAL COMPONENTS

MEGHA GUPTA, DR. BHARTI

Abstract

Profitability is a primary indicator of corporate sustainability and financial efficiency. While traditional finance theory emphasizes capital structure and long-term investment decisions, short-term financial management—particularly working capital management—has increasingly been recognized as a key determinant of firm performance. The present study examines the effect of working capital components on firm profitability using an econometric approach. Secondary financial data covering ten years (2014–2023) were analyzed. The study evaluates the influence of inventory period, receivables collection period, payables payment period, and cash conversion cycle on profitability measured through Return on Assets (ROA). Multiple regression analysis and correlation tests were applied. The findings show that receivable collection efficiency and a shorter cash conversion cycle positively affect profitability, whereas excessive inventory holding reduces returns. The results confirm that effective working capital management significantly determines financial performance. The study recommends maintaining an optimal working capital policy balancing liquidity and profitability.

Article : Download PDF

Cite This Article

IESRJ

International Educational Scientific Research Journal

E-ISSN: 2455-295X

International Indexed Journal | Multi-Disciplinary Refereed Research Journal

ISSN: 2455-295X

Peer-Reviewed Journal - Equivalent to UGC Approved Journal

Peer-Reviewed Journal

Article No : 27

Number of Downloads : 40

References

1. Deloof, M. (2003). The impact of working capital management on profitability of Belgian firms. Journal of Business Finance & Accounting, 30(3–4), 573–588.

2. https://doi.org/10.1111/1468-5957.00008

3. Shin, H. H., &Soenen, L. A. (1998). Efficiency of working capital management and corporate profitability. Financial Practice and Education, 8(2), 37–45.

4. Lazaridis, I., &Tryfonidis, D. (2006). Relationship between working capital management and profitability of listed companies in the Athens Stock Exchange. Journal of Financial Management and Analysis, 19(1), 26–35.

5. Raheman, A., & Nasr, M. (2007). Working capital management and profitability – Case of Pakistani firms. International Review of Business Research Papers, 3(1), 279–300.

6. Gill, A., Biger, N., &Mathur, N. (2010). The relationship between working capital management and profitability: Evidence from the United States. Business and Economics Journal, 10, 1–9.

7. Pandey, I. M. (2015). Financial Management (11th ed.). New Delhi: Vikas Publishing House.

8. Van Horne, J. C., &Wachowicz, J. M. (2008). Fundamentals of Financial Management (13th ed.). Pearson Education.