| This study investigated whether a change in the working capital assets structure has an impact on the level of profitability of companies, an under researched topic in the financial literature. Companies' financial data were used to perform different statistical tests on working capital policy models and evaluated with STATA. The theory of net-working capital formed the background for this study. The research questions explored the working capital policies' relationship with profitability strategy in small nonfinancial firms. The study's financial ratios were the working capital investment policy; working capital financing policy (independent); return on assets (dependent); and the firm's size, growth, and financial leverage as control variables. Data were collected from the financial statements of 100 companies through their Form 10-K submitted to the Securities and Exchange Commission. The proposed relationships were tested through statistics, F- test, and regression. The findings indicated that working capital variables and profitability are statistically significant predictors of corporate working capital policy decisions. Firms will have more profit if more current assets fund working capital investment. Also, findings suggest that, in comparison to a firm with high usage of current liabilities, a firm with low usage of current liabilities may lead to positive results in the firm's working capital policy. This study confirmed that size, growth, and financial leverage ratio are potent tools that mitigate risk of achieving profitability in companies. These findings may drive improved profitability performance for corporate leaders in small and medium size corporations and increase the firm's growth. This improved profitability may decrease unemployment and lead to a higher standard of living. |
