The Limited Impact of Working Capital Management on Profitability: Evidence from the UK Healthcare Industry

Abstract

This study examines the relationship between working capital management (WCM) and profitability in the UK healthcare industry, a non-cyclical sector characterized by stable demand and significant operational costs. Utilizing panel data from 16 publicly listed healthcare companies over the period 2017–2021 (90 observations), we analyze the impact of key WCM components—Average Collection Period (ACP), Average Payment Period (APP), Inventory Turnover in Days (ITD), and Cash Conversion Cycle (CCC)—on Net Profit Margin (NPM). Contrary to prevailing literature that predominantly finds significant relationships between WCM efficiency and profitability, our random effects regression analysis, after controlling for firm size, growth, and liquidity, reveals a more nuanced picture. Only the Average Collection Period demonstrates a statistically significant negative relationship with profitability (p < 0.1), suggesting that shorter collection cycles enhance profit margins. The other WCM components, including APP, ITD, and CCC, show no statistically significant impact. This finding challenges conventional wisdom in financial management and suggests that in the specific context of the UK healthcare sector—with its unique regulatory environment, payment structures, and inventory needs—aggressive management of payables and inventory may not yield the profitability benefits observed in other industries. The study contributes to the literature by providing industry-specific evidence and highlights the importance of contextual factors in WCM strategies.