| Working capital optimization, as an act of balancing liquidity and profitability, presents significant challenges when small businesses lack managerial expertise and access to affordable capital and credit facilities. To remain successful through efficient utilization of working capital, small business leaders need to understand the association between working capital management (WCM), working capital policy (WCP), and business profitability (PFT). Anchored in the cash conversion cycle theory, the purpose of this correlational study was to examine the relationship between WCM, WCP, and PFT. The study employed a retrospective secondary analysis of financial data from 2004 to 2013 from a random sample of 176 publicly traded small U.S. manufacturing companies. The regression results incorporating 3 models were significant in predicting profitability in terms of gross operating profit (GOP), return on asset (ROA), and Tobin's q (TBQ). The regression results showed that WCM and WCP were significant predictors of GOP, F (5, 170) = 8.580, p < .000, R2 = .201; ROA, F (5, 170) = 4.079, p < .002, R2 = .107; and TBQ, F (5, 170) = 6.231, p < .000, R 2 = .155. The overall result confirmed that WCM and WCP predicted PFT significantly (p < .05). Small business leaders may incorporate working capital optimization practices into overall corporate strategy, thereby aligning working capital needs with the changing business requirements. The implications for positive social change included the potential to provide small business leaders with knowledge of WCM and WCP as drivers of PFT. Profitable businesses may provide employees and communities with better jobs; stock ownership; and development infrastructures such as road, healthcare, and educational facilities. |
