Effect of Trade Receivables and Inventory Management on SMEs Performance
Abdullahi Hassan Gorondutse *
School of Business Management, College of Business, Universiti Utara Malaysia, Malaysia and Nigerian Police Academy Wudil, Kano State, Nigeria
Rahima Abass Ali
Sri Tiomon ii, Block 40 -01-04, Jalan Taman Melati 1/5, Setapak, 53100 Kuala Lumpur, Malaysia
Abass Ali
Sri Tiomon ii, Block 40 -01-04, Jalan Taman Melati 1/5, Setapak, 53100 Kuala Lumpur, Malaysia
*Author to whom correspondence should be addressed.
Abstract
This paper investigates the effect of trade receivables and inventory management on SMEs profitability in Malaysia. 66 sample of SMEs Manufacturing covering from 2006-2012 was used for the analysis. Ordinary least square (OLS) regression is used to estimate the relationship between independent and dependent variable. The result indicated that days account receivable and inventory turnover in days are negatively related to SME profitability proxies i.e. return on assets (ROA), return on equity (ROE) and net operating profit (NOP). The result implies that profitability of SME manufacturing depends upon effective of working capital components management. Therefore, the paper suggests that SME manufacturing can improve their Profitability upon managing working capital properly. Recommendations for future study were also discussed.
Keywords: Trade receivable, inventory management, SMEs performance