Analysis of Working Capital Management and Profitability of Small and Medium Enterprises in Owerri, Imo State

Working capital management efficiency is a key determinant of profitability for small and medium enterprises, and its analysis in the Owerri business environment, South East Nigeria, provides practical guidance for SME financial management. This study analysed the relationship between working capital management practices and profitability among 120 SMEs operating in Owerri, Imo State, across the trading, manufacturing, and service sectors. Financial data from business records for the period 2020 to 2022 were used to calculate working capital metrics: cash conversion cycle, accounts receivable days, accounts payable days, and inventory days. Profitability was measured by net profit margin and return on assets. Pearson correlation and panel regression analysis were employed. Results showed a significant negative relationship between cash conversion cycle length and net profit margin (r = -0.61, p < 0.001), confirming that shorter cash conversion cycles correlate with higher profitability. Accounts receivable days were the most critical component, with every 10-day reduction associated with a 2.3 percentage point improvement in net profit margin. Inventory days showed significant sector-specific effects, with trading SMEs more sensitive to inventory efficiency than service SMEs. Working capital management quality was significantly higher in formally registered SMEs compared to informal businesses. The study concludes that SMEs in Owerri can significantly improve profitability through active management of receivables collection and recommends credit management training programmes for SME owners through the Imo State Enterprise Development Agency. Keywords: working capital management, profitability, SMEs, Owerri, cash conversion cycle