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Working capital in small and medium enterprises in Ecuador

Abstract:

This quantitative research focuses on determining the effects of working capital management on profitability measured through the ROA, in a sample of 8763 Ecuadorian SMEs registered in the Superintendency of Companies of Ecuador. We employ a correlation analysis and an Ordinary Least Squares (OLS) regression to verify if the ROA is influenced by working capital. The explanatory variables are the period of accounts receivable (ACR), inventory period (INR), accounts payable period (ACP), cash conversion cycle (CCC). Control variables are financial leverage (LEV), size of the company (Size), fixed assets to total assets (Fa_act) and current assets to total assets (CAR). The results show that there is a significant relationship between working capital (CCC) and profitability. The number of days of accounts receivable and number of days of accounts payable are important to explain the profitability (ROA) of SMEs in Ecuador.