International Journal of Finance & Managerial Accounting

International Journal of Finance & Managerial Accounting

Investigating the Relationship between Changes in Working Capital and Debt Ratio with Changes in Company Profitability

Document Type : Original Article

Authors
Reza Mansoorian 1
Seyyedeh Mahboobeh Jafari 2
asgar askari 3
Mostafa Khadem Al-Husseini 3
1 Assistant Professor and Faculty Member, Accounting and Finance Department, South Tehran Branch, Islamic Azad University, Tehran, Iran(
2 Assistant Professor and Faculty Member, Accounting and Finance Department, South Tehran Branch, Islamic Azad University, Tehran, Iran
3 PhD student in Accounting, Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran
10.22034/ijfma.2025.78815.2316
Abstract
The main objective of this study is to investigate the relationship between changes in working capital and debt ratio with changes in company profitability. The statistical population of the present study is the companies listed on the Tehran Stock Exchange that have been active during the period from 2016 to 2023. The statistical sample is 128 companies based on the screening criteria. This study is an applied research based on the nature and objectives of the study. Also, the data used in this study were collected using banks and information sources of the Tehran Stock Exchange Organization. Then, a mixed data regression model was used to test the research hypotheses. This study has two hypotheses. The results showed that there is a significant relationship between the change in the company's debt ratio and the company's profitability, and there is also a positive and significant relationship between the change in the company's debt ratio and the company's profitability.
Keywords
Working capital
debt ratio
company profitability
working capital changes
  1. Jahankhani, Ali, Shouri, Mojtaba (2009) Modern Financial Management (Volume One)
  2. Rahnamay Roudpeshti, Fereydoun and Ali Kiaei (2008). A Study on Explaining Working Capital Management Strategies in Companies Listed on the Tehran Stock Exchange. Accounting Knowledge and Research. Summer, No. 92. pp. 92-1
  3. Qayedi Sh., & Amiri A. (2010). Comparing the Effect of Working Capital Management on the Profitability of Companies in Different Industries. Scientific Journal of New Research Approaches to Management and Accounting, 4(13), 1-18. Retrieved from https://majournal.ir/index.php/ma/article/view/383
  4. Gerami, Ameneh, Heydari Nik, Zahra, Qarkhlovi Naderi, Ghazal and Azizi Baba Ahmadi, Mahtab (2023). The Effect of Working Capital Management on the Profitability of a Company with an Emphasis on Company Size. Accounting and Management Perspective, 6(81), 227-238.
  5. Mohammadi, Timur, Faqhai Kashani, Mohammad Reza and Sameei, Mehdi. (2024). Leverage effect and the role of debt ratio in selected companies of Tehran Stock Exchange. Iranian Economic Research, 29(98), 54-85. doi: 10.22054/ijer.2022.63352.1035
  6. Nourbakhsh Hosseini, Zeinab and Mohammad Hosseini, Elahe, 2023, Investigating the Effect of Working Capital on Firm Performance and Profitability with Respect to the Moderating Variable of Ownership Structure in Companies Listed on Tehran Stock Exchange, 6th International Conference on New Developments in Management, Economics and Accounting, Tehran, https://civilica.com/doc/1861340
  7. Frankline Chasha Sogomi1T Mary Kavele Patrick, Charles Guandaru Kamau(2024) Exploring the Relationship between Working Capital Management, Liquidity, and Financial Performance within the Context of Kenyan SME’s.Review Paper African Journal of Commercial Studies Publisher's Home Page: https://ijcsacademia.com/
  8. Halil Kiymaz T Samina Haque , Ahmed Abir Choudhury(204) Working capital management and firm performance: A comparative analysis of developed and emerging economies. Borsa Istanbul Review Volume 24, Issue 3, May 2024, Pages 634-642.
  9. Koksal, Sen, & Oruc,E. (2010). Relation between the Efficiency of Working Capital Management and Company Size. Faculty of Economics and Administrative Science, PP 522-531.
  10. Noreen, Umara, Sabeen Khurram Khan and Qaisar Abbas, (2009), "International Working Capital Practices in Pakistan", International Research Journal of Finance and Economics, Issue 32, 160-170.
  11. Raheman and Nasr, 2007,”Working Capital Management And Profitability-Case Of Pakistan Firms” International Review of Business Research Papers ,Vol.3, Pp.279 – 300
  12. Siyu Zhou , Bany-Ariffin AN , Matemilola Bolaji Tunde , Yuhua Chen , Keming Xu(2025) Working capital management and corporate profitability: the moderating role of foreign ownership .Finance Research Letters https://doi.org/10.1016/j.frl.2025.107466

13.  Orestes Vlismas(2023) The moderating effects of strategy on the relation of working capital management with profitability.  The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/1832-5912.htm