WORKING CAPITAL'S IMPACT ON OIL INDUSTRYPROFITABILITY

Abstract

Working capital management (WCM) is an important aspect of
financial management to ensure efficient use of current assets and liabilities to
balance between profitability and liquidity. Even though there is no absolute
perfect answer, financial managers need to formulate a proper strategy for the
working capital. WCM in the oil industry is particularly important due to the
following reasons; a) There is a huge demand for its products, b) Oil and its
products are key inputs for other manufacturing industries, c) Oil prices are too
sensitive to political, social and economic factors, d) Crude oil extraction
capacity periodically changes. Therefore, firms in this sector need to have
flexible production levels so that they keep a balance between the purchase of
crude oil and sales of processed oil. A multiple OLS regression method was
applied to examine the effect of WCM on profitability in the Oil Industry. The
data contained 231 observations from 21 oil companies listed on NYSE and
KASE between 2010 and 2020 years. Findings indicated that downstream oil
companies need to focus more on the management of credit policies, debt
management, and fixed assets management.