“Capital Management and its Impact on Profitability: Evidence from Selected Food and Beverage Companies listed in DSE”

Abstract

This report explores the relationship between capital management practices and profitability in selected food and beverage companies listed on the Dhaka Stock Exchange (DSE). The food and beverage (F&B) industry is one of Bangladesh’s fastest-growing sectors, contributing significantly to employment, income generation, and overall economic development. With rising competition, changing consumer preferences, and increasing operational costs, effective capital management has become a critical determinant of financial performance and long-term business sustainability in this sector. The study investigates how various components of capital management—capital structure, working capital efficiency, and cost of capital—influence firm profitability. Secondary data were collected from published annual reports, audited financial statements, and other DSE disclosures over a five-year period. To assess financial performance, the study analyzed key indicators including Return on Assets (ROA), Return on Equity (ROE), Net Profit Margin (NPM), Debt-to Equity Ratio, Current Ratio, Quick Ratio, Inventory Turnover, Accounts Receivable Turnover, and Cash Conversion Cycle (CCC). The findings reveal that excessive reliance on short-term debt negatively impacts profitability, particularly ROA, as higher dependence on short-term borrowings increases financial risk and liquidity pressures. In contrast, prudent use of long-term debt demonstrates a relatively limited or neutral effect on profitability, suggesting that stable long-term financing can support growth without substantially eroding returns. Effective working capital management, particularly a reduced CCC, is positively correlated with profitability, as it improves liquidity, reduces financing costs, and enhances operational efficiency. Conversely, a high cost of capital, often resulting from inefficient investment decisions or excessive leverage, tends to constrain profitability and shareholder value. In addition, the study identifies that companies with strategic capital allocation, timely receivables collection, and optimized inventory levels achieve better financial outcomes. Firms that integrate robust capital management with corporate governance, risk management practices, and investment in technology for financial planning tend to outperform peers in profitability metrics and operational resilience. The report concludes that maintaining an optimal capital structure, efficient working capital management, and cost-effective financing are essential for improving financial performance in the F&B sector. Recommendations include balancing debt and equity judiciously, reducing dependence on short-term borrowings, implementing robust cash flow monitoring systems, and leveraging long-term financing for strategic growth. Policymakers and regulators can also facilitate sustainable sector growth by ensuring easier access to long-term financing, promoting financial literacy, and encouraging strong corporate governance practices. In summary, this report emphasizes that capital management is not merely a financial function but a strategic tool that drives profitability, operational efficiency, and long-term sustainability in Bangladesh’s food and beverage industry. Effective capital management can thus serve as a key competitive advantage in a dynamic and increasingly complex market environment.