Analyze the impact of Working Capital Management and Net Profit Margin on Accounting Profitability assessment (a study of manufacturing companies listed on the Iraqi Stock Exchange for 2016–2022).

Abstract

The problem of the study is the existence of an unclear relationship between working capital management and net profit to accounting profit in manufacturing companies in Iraq. Investors often rely solely on a company’s profitability as a measure of its financial strength without considering its working capital management.

The study aims to determine the impact of working capital management and net profit margin on accounting profitability in manufacturing companies listed on the Iraqi Stock Exchange for the years 2016-2022. Only 10 companies met the total study criteria. Panel data regression and statistical methods were used to evaluate and test the quantitative method research hypothesis with the help of EViews software. The findings indicate that net profit margin (NPM) has a significant positive effect on return on assets (ROA), a measure of accounting profitability. Working capital management is measured by liquidity (LIQ), leverage (LEV), and cash flow (CF). Liquidity (LIQ) and leverage (LEV) have a significant negative effect on return on assets (ROA). However, cash flow (CF) has a positive yet non-significant impact on return on assets (ROA). The result of the R-squared value of 23% confirms that the regression model used in the study achieved the objective to some extent.

This paper not only contributes to the literature review, by providing a new idea of the relationship between working capital management and net profit margin and accounting profit, but at the same time, it suggests that management policy should consider working capital in companies as an important aspect.