Abstract

This study examined the impact of working capital management practices on perceived profitability among manufacturing firms in Afghanistan. Although a lot of research has been done on the relationship between working capital and profitability, Afghanistan's data is still scarce. This study examines how Afghan manufacturing firms assess their profitability in terms of inventory, cash, payables, receivables, and liquidity management. A quantitative cross-sectional methodology was employed to collect data from 384 managers, accountants, finance officers, and business owners using a standardized questionnaire. Multiple regression analysis was used to test the proposed connections. The results show that perceived profitability is positively and significantly impacted by all five aspects of working capital management. Cash management emerged as the strongest predictor (β = 0.271, p < 0.001), followed by receivables management (β = 0.264, p < 0.001), liquidity management (β = 0.258, p < 0.001), inventory management (β = 0.223, p < 0.001), and payables management (β = 0.093, p = 0.015). The model proved to be highly explanatory, as it could explain 56.7% of profitability variance (R2 = 0.567). Apart from contributing to a better understanding of the theories of Working Capital Management, Cash Conversion Cycle, and Resource-Based View in Afghanistan, this study provided empirical evidence to support them. The results highlight the importance of cash, inventory, payables, receivables, and liquidity management in enhancing profitability and competitiveness, particularly in emerging markets.

Keywords

Working Capital Profitability Manufacturing Firms Afghanistan Liquidity Management